Week in Review – 1 January 2016

Price corrections in resale flats; HDB to launch 18,000 BTO flats in 2016 and ensure sustainable supply
National Development Minister Lawrence Wong said resale flat prices have gradually corrected to 2011 levels. More than half of the flats sold were transacted close to their market value; a positive outcome for both buyers and sellers. Mr Wong believes this correction stems from steps taken by the government, such as promoting home ownership by constructing more Housing and Development Board flats and policies paying attention to certain demographics of the population. Despite successful price corrections for the property market, Mr Wong said it is still too early to discuss the easing of cooling measures for the property market.
In 2016, 18,000 BTO flats are slated to be launched, a 20 per cent increase from the 15,000 new BTO flats launched in 2015. Mr Wong explained that the increase in supply is a response to greater demand resulting from housing policy changes. For instance, income ceilings were raised to allow more people to qualify for application of BTO flats, as well as greater grants for Singaporean home buyers. While ramping up the supply of flats, the authorities will monitor market conditions and ensure that supply is sustainable in the longer term. 
High-end condos see prices slide from 2007 peak
A three-bedroom unit (1,227 sq ft) on the eighth floor of VisionCrest Residence was sold for $2.3 million, according to a caveat lodged on 9 November. This high-end condo situated at Oxley Rise in prime district 9 was sold at a 22.8 per cent loss compared to its purchase price of $2.98 million in 2007. Another two-bedroom apartment on the fifth floor of the same block which was bought at $1.75 million in 2007 was sold for $1.73 million in October; a loss of 1.26 per cent. 
The Paterson, an 88-unit freehold condominium owned by Singapore Land and completed in 2004, saw a similar downward shift in prices. A four-bedroom unit on the 21st floor was sold at an 18.8 per cent loss compared to its purchase price in 2007, from $5.05 million to $4.1 million. 
November’s slide in property prices to continue into 2016
According to Singapore Residential Price Index (SRPI) estimates compiled by the National University of Singapore’s Institute of Real Estate Studies, overall resale prices of private homes dipped 0.6 per cent month-on-month in November. This is a slide from October’s 0.1 per cent growth. Outside of small units, prices of homes in the central region and non-central region dipped 0.8 per cent and 0.4 per cent respectively in November. Prices of small units with floor area smaller than 506 sq ft registered the biggest dip of 1.2 per cent.
Singapore’s property market is expected to continue its lacklustre performance into 2016. With the United States Federal Reserve normalising interest rates, prospective buyers will likely be sidelined while they adapt to the new conditions. Compounded with property cooling measures still in place, analysts expect property prices to slide by as much as 8 per cent in the next twelve months.
Mr Ong Teck Hui, National Director for Research and Consultancy of JLL, expect the higher interest rates and cooling measures to dampen demand as well as soften prices. 2016 might see property prices fall at a quicker pace should economic conditions worsen.
The year ahead might also see developers under pressure to clear inventory with their deadline to avoid stamp duties and extension fees levied nearing. Developers have to pay an Additional Buyer’s Stamp Duty (ABSD) of 15 per cent if they are unable to build, complete and sell all units within five years of land acquisition. To avoid these extra levies, developers might turn to lowering prices to meet buyers’ expectations, and this could help improve property sales volume in 2016. 
Analysts concur that the government is unlikely to review property cooling measures as the current situation provides little incentive for the government to do so. 
HDB puts two EC sites for sale
An Executive Condominium (EC) site on Yio Chu Kang Road has been launched for sale by the HDB. The 99-year leasehold site sits on a 198,302 sqf area, and can yield approximately 520 homes. This site is in close proximity of the popular Rosyth School, but does not have MRT stations in its immediate vicinity. Tender for this site closes on 18th February 2016.
However, analysts expect conservative bids from developers due to the presence of large unsold inventory. 
A separate EC site was released for application under the Reserve List. This site is situated at Suman Walk in Punggol, with a land area of approximately 291,233 sqf and can yield up to 820 units. Despite its attractive location – being close to Punggol MRT and newly completed Waterway Point shopping centre – it is unlikely to be triggered for a public tender. Eugene Lim, Key Executive Officer at ERA says this is due to the unsold EC inventory as well as the large land parcel size. Reserve list sites are only triggered for public tender when a developer makes an acceptable opening offer. 
Manhattan’s property market in 2015
The value of Manhattan’s luxury-home market is depreciating, with the median price of the most expensive homes falling to US$3.59 million in October 2015, a drop of 2.2 per cent from 2014. Prices have been sliding every month since February, after reaching the record peak of US$3.72 million.
Contrary to the broader property market of Manhattan which is seeing prices rise, prices of luxury homes are experiencing a downward trend. While developers have been building large and lavish units targeted at wealthy investors, such investors have been hesitant to purchase. Concurrently, developers are unwilling to increase supply of moderately priced homes due to the high cost of land as well as the unprofitability of such houses. Owners of moderately priced homes have been unwilling to sell their property as they cannot afford to trade up.
Economic conditions, such as the weakening of the euro against the US dollar, volatility of China’s stock market, as well as a losing year for hedge funds have led to softened demand for luxury homes.
Focus on first time buyers in US Property Market
Ever since the recovery to the US housing market started in 2012, developers have typically shifted focus away from the entry-level market to developing larger, more profitable homes as land and labour costs increased. However, US developers are starting to look at first-time buyers again, providing cheaper offerings with less built-in features as rising home prices have turned away younger buyers looking to purchase their first home.
Developers of entry-level properties have shown an increase in revenue. DR Horton, the country’s largest builder, attributes 14 per cent of its revenue from its Express range, with LGI homes, an entry level home builder from Texas, has seen an 88 per cent increase in revenue in the third quarter of this year from Q3 2014. 
On the other hand, other developers are taking on a different approach, by going after affluent young buyers by building homes near suburbs near major cities. For instance, PulteGroup Inc is building homes in suburbs near Boston, San Francisco, Atlanta and Washington in a bid to target affluent millennials. A condominium project close to a subway station in Fairfax, Virginia has prices starting from US$539,990.
Positive outlook for US property market
With lean inventories of available properties coupled with steadily improving demand, home values in 20 US cities rose at a faster pace in 2015.
Limited supply of properties for sale helped raise home values, lifting household wealth levels of US homeowners as a result. 
Anika Khan, senior economist at Wells Fargo Securities (Charlotte, North Carolina) expects job gains and more household formation to continue boosting demand in 2016, while keeping prices within the current healthy range. 
Home prices in the 20-city index, factoring in seasonal variations, rose 0.8 per cent in October after registering a 0.5 per cent hike in September. Housing data have also shown that the market is slowing down in recent weeks, a sign that the momentum in the property market may be cooling in the typically slow time of the year. 
New constructions have been positive for the industry, with November seeing work beginning for the largest number of single-family houses since January 2008, with permits for similar projects registering an eight-year peak.
Such pace can only be maintained with proof that demand remains strong going into 2016. Labour-market improvements bringing about wage growth would help provide consumers the means and confidence to purchase a home, particularly with prospects of higher mortgage rates looming following the US Federal Reserve raising interest rates for the first time since 2006.
Record-breaking transaction not indicative of Hong Kong’s property market
A luxury apartment in Hong Kong was sold days before Christmas at a record HK$594.7 million (S$107.9 million), making it the most expensive flat in Hong Kong and possibly Asia.
The buyer paid more than HK$103,700 per-square-foot for the 5,732 square foot (532 square-metre) unit at the luxury 39 Conduit Road apartment tower situated in the upmarket Mid-Levels residential area.
The transaction price beats the previous record of HK$470 million luxury unit that occupies the entire eighth floor of the Opus Hong Kong, a twelve-storey residential building.
Following the US interest rate hike, Hong Kong’s de facto central bank raised its interest rate by 25 points to 0.75 per cent. As a result, Hong Kong-based brokerage CLSA warned that the residential market might experience price falls of up to 17 per cent by 2017, with other firms expecting price slides of up to 30 per cent. 
Chief analyst for Midland Realty, Buggle Lau believes the record-breaking transaction is not indicative of the macro picture of Hong Kong’s property market, with the overall property market still sluggish. Many residents in Hong Kong have been priced out and are unable to purchase decent accommodation in the city, with even the upper middle class find property ownership beyond their means.
Rise in British house prices signals stronger market 
British house prices grew at a higher than expected rate in December, a sign of the housing market’s rising momentum. According to mortgage lender Nationwide, house prices hiked 0.8 per cent in December; higher than an expected 0.5 per cent growth and compared to the 0.1 per cent rise in November. Overall, house prices saw a 4.5 per cent rise year-on-year in December, an increase from the 3.7 per cent year-on-year growth in November.