Local Property News
Property prices unaffected by increasing home supply
Vacancy rates in Singapore’s private property market are at 8.9 per cent, closing in on the 16-year high influenced by the 1997 Asian Financial Crisis. On top of this, a Colliers report in March this year showed that the 70 mortgagee sales in Q1 2016 was similar to numbers seen during the Global Financial Crisis in 2008. Property prices, however, have hardly been affected even though indicators show that the housing market is oversupplied. The Urban Redevelopment Authority’s (URA) private home prices index indicates that prices merely dipped nine per cent since the 2013 peak. Compared to the 62 per cent hike in property prices between 2009 and 2013, current price corrections are mild.
In a Channel NewsAsia report, property analysts cited low unemployment rates and ultra-low interest rates as some reasons why the fall in property prices are disproportionate to the issue of oversupply. Mr Nicolas Mak, Head of Research and Consultancy at SLP International, told Channel NewsAsia that the current economic slowdown differs from previous recession periods. He argues that government policies, such as cooling measures, caused the most recent spate of price falls rather than an economic downturn. Private home price falls are also not significant since unemployment continues to be low and loans continue to be approved by banks. Mr Ong Teck Hui, National Director of Research and Consultancy at Jones Lang LaSalle Singapore, added that economic conditions now are not as dire as 1997-1998 when there was widespread pressured selling of property. In 1998, the unemployment rate increased to 3.4 per cent from 1.4 per cent in 1997. That’s compared to the current unemployment rate of 2.1 per cent, which increased slightly from 1.9 per cent in 2015.
According to Mr Mak, interest rates that have remained low for a period of time have contributed to a slow decline in prices. He said, “Some owners are not pressured to sell their investment properties despite the low returns…If the mortgage rates were higher, more property investors could be forced to sell and exit the market”. Another influencing factor is how Singapore’s property market is still in the early stages of an oversupply, according to Mr Ku Swee Yong, CEO of Century 21 Singapore. Statistics from URA show that approximately 20,000 residential units will be built and introduced into the property market by this year. That number is expected to start dipping from 2017 onwards. The current vacancy rate of 8.9 per cent is equivalent to 30,310 vacant units. However, the number does not indicate the number of vacant unsold units, nor those sold but unoccupied.
First Private Public Partnership project Singapore Sustainable Academy launched
City Developments Limited (CDL) and the Sustainable Energy Association of Singapore (SEAS) have partnered to launch the Singapore Sustainable Academy (SSA), a S$2 million project that will be fully functional by March 2017. The academy which spans over 4,300 square feet, is the first-of-its-kind major Private Public Partnership project. It seeks to engage the construction industry in creating a sustainable, low-carbon economy and promote efficient use of resources. Located at City Square Mall’s roof terrace, the SSA initiative is endorsed by Singapore’s Ministry of the Environment and Water Resources (MEWR), the National Environment Agency (NEA), the Urban Redevelopment Authority (URA), as well as the Building and Construction Authority (BCA). The ministry and agencies will provide support for SSA’s activities in Asia. Tapping on the industry’s knowledge, as well as the expansive network of CDL and SEAS, SEAS Chairman Edwin Khew believes that collaboration in the form of an academy will effectively aid in achieving the goal of outreach, education, and a sustainable energy industry. This will help to meet the goals outlined in the Sustainable Singapore Blueprint.
Global Property News
CBRE reports continued appetite for real estate investments
CBRE has reported that real estate assets remain in demand despite a steep fall in Q1 2016’s investment volumes, during which period almost all major markets saw a 19 per cent fall in commercial property investments. The reduction in investment activity was attributed to equity market volatility – China’s economic slowdown as well as the UK’s Brexit referendum. However, despite these market-cooling factors, the ultra-low interest rates present a strong case for real estate investments, given how this makes for favourable bond rates spread over the longer term. CBRE expects 2016’s capital injection into real estate investments to be similar to figures recorded in 2014 and 2015, and suggests that gateway cities such as London and New York will remain key investment opportunities.
Vancouver’s property market recorded strong performance in the past year up to June with a 36 per cent increase in prime property prices. However, Knight Frank believes the recently imposed 15 per cent tax on foreign property buyers may have a huge impact on Vancouver’s property market. According to Knight Frank, other property markets, including Shanghai (China), Cape Town (South Africa), Toronto (Canada), and Melbourne and Sydney (Australia) had the strongest performance, with annual price growth increasing by double figures in H1 2016. These strong performances helped increase the overall 2016 Prime Global Cities Index for the second quarter of 2016 by 4.4 per cent, the highest recorded in more than two years. Kate Everett-Allen, Head of International Residential Research at Knight Frank, commented that Vancouver’s recently implemented cooling measures add it to a growing number of cities including Hong Kong, Singapore, Sydney, and Melbourne where policymakers are curbing foreign property purchase. These cities are currently among Knight Frank’s top ten ranking cities. “From interest rate hikes to fees for foreign buyers, higher land taxes, or new rules on the number of second homes that can be acquired, lowering price inflation is high up government agendas which suggest that a year from now the cities populating the top ten rankings could look very different,” she said.
According to UBS Group AG, a global financial services company, office buildings currently being constructed in London will have a larger impact on reducing rents and valuations than companies relocating from London following the UK’s decision to leave the European Union (EU). The oversupply of offices in the pipeline began before the referendum as developers started constructing more office projects in September 2015 to capitalise on increasing rents. According to real estate and real estate investment trust (REITs) advisors Green Street Advisors LLC, the value of offices might slip 20 per cent as demand falls. International businesses are expected to start shifting jobs away from London or put expansion plans on hold as a result of Brexit. Jefferies LLC analyst Mike Prew suggested to Bloomberg that London could see a reduction of 100,000 jobs in London within two years of Brexit.
Despite a weak commercial property market, the UK’s residential property market performed better. Residential property prices fell by one per cent in July, a slight decrease that was encouraging for property professionals who expected a bigger drop. According to the Halifax House Price Index in July, the average seasonally adjusted price increased to £214,678, up 8.4 per cent year-on-year. This is the lowest yearly growth recorded since July 2015. Prices rose 1.6 per cent in the three months to July. The UK property market is showing signs of slower price growth. The previous few months saw quarterly and annual price growth of the property market reducing. Nevertheless, Mr Martin Ellis, Halifax Housing Economist, told OPP.Today it is still premature to determine if Brexit has truly affected the UK’s property prices. Despite prices generally trending down, property prices west and southeast of the Crossrail project in London almost doubled the average in some locations, according to Nationwide building society. Since the Crossrail project was announced in 2014, residential property prices grew at a faster rate compared to the region and the whole of the UK. Since 2014, Slough and Reading recorded the strongest property price growth, at 39 per cent and 33 per cent respectively. Senior Economic Analyst at Nationwide, Andrew Harvey, suggested to OPP.Today that the Crossrail project played a huge role in the hike in property prices for residential units located at the western side of the route towards Berkshire.
CoreLogic Inc, a real estate research firm, has reported a surge in the number of Australia suburbs, with homes fetching a median of AU$1 million. As of June this year, the number of suburbs with a minimum median value of AU$1 million has jumped 29 per cent year-on-year to 613 suburbs, more than doubling since 2013. Cameron Kusher, a research analyst at CoreLogic, said that residential property in New South Wales (Sydney) and Victoria (Melbourne) has thus become less affordable. Across the country, residential property prices rose 40 per cent compared to a previous trough in May 2012, driven by investors who capitalised on record low interest rates and an advantageous tax system for landlords. With prices hurting affordability of residential property units, banks have started tightening loan approvals. As a result, price growth has started slowing since the start of 2016. However, the Reserve Bank of Australia announced a cut in interest rate this week, from 1.75 per cent to 1.5 per cent, the lowest mortgage rate in 50 years. Mr Kusher believes that luxury residential property will remain in demand in the year ahead with “historic low interest rates”.
Japan is seeing more real estate developments across the nation as real estate developers take advantage of the Bank of Japan’s (BOJ) quantitative easing and negative interest rates to apply for loans. Analysts and developers believe the growing construction sector will continue its strong performance into the 2020 Tokyo Olympics and benefit Japan’s economy. With low rates and relative ease of getting bank loans approved, Mitsutoshi Tenda, a Mitsui Fudosa Co spokesperson, told Reuters that office developments will be higher than usual. In June this year, there was a year-on-year increase of 1.7 per cent in office space in Central Tokyo. This is the greatest growth margin since April 2013, according to Miki Shoji Co, an office broker and research firm. There has also been a surge of hotel and restaurant construction, with a 93.6 per cent increase in June this year (in terms of square metres) compared to June 2015. Japan’s tourism sector has boomed after visa requirements for Chinese tourists were eased earlier this year. However, the Mizuho Research Institute suggests that Japan might experience a shortage of approximately 41,000 hotel rooms by 2020, taking into consideration demand created by the upcoming Olympics.