According to flash estimates from SRX Property, December resale prices of non-landed private homes slid 0.8 per cent compared to November. Analysts expect prices to continue the downward trend due to soft demand and higher interest rates.
Prices declined 2.1 per cent year-on-year in 2015, compared to the 4 per cent dip in 2014.
PropNex Realty sees the declining prices as a reflection of current languid market sentiment and the cumulative impact of cooling measures.
Despite prices dipping there was a rebound in December’s transaction volume – a sign that buyers are more willing to enter the market and are optimistic that prices are slowly bottoming out. PropNex believes private home prices will continue dipping two to three per cent in 2016 as the government continues to maintain cooling measures.
However, the falling prices might be an incentive for buyers to purchase home units; helping to raise transaction volumes.
Despite December 2015’s resale volume of 519 non-landed resale units being transacted – a 44.2 per cent increase compared to 360 units sold in December 2014 – strong headwinds are expected in 2016 from a weakening economy and higher interest rates.
Rental prices down year on year, with a trend of shorter leases and expats turning to HDBs
According to the latest flash estimates from SRX Property, December rental prices for HDBs and non-landed private property have fallen year-on-year.
Rental prices for HDB flats fell four per cent in December as compared to a year earlier, while non-landed private property rental prices fell 5.4 per cent in the same period.
Lower prices might have led to shorter residential leases; according to ERA Realty, more tenants are signing one-year leases instead of two-year leases to take advantage of a continuing decrease in prices. In particular, ERA Realty expects that rent prices for private residential units will continue to decrease in 2016 due to tightening immigration policies and a supply glut.
However, they expect HDB rental demand to increase, especially as expatriates turn away from private apartments and towards HDBs due to lower housing allowances.
Analysts do not expect the recent increase in interest rates to have a large impact on Singapore’s residential property market.
According to Dr Chua Yang Liang, JLL’s Head of Research Southeast Asia and Singapore, the Total Debt Servicing Ratio (TDSR) helped mitigate the negative impact of rising borrowing costs. The Monetary Authority of Singapore curbed excessive borrowing and placed a limit on household leverage through the TDSR policy, which in part requires banks to levy interest rates of not less than3.5 per cent for residential loans and not less than 4.5 per cent for non-residential property loans.
Should Singapore’s domestic and regional economies continue to weaken and domestic rates experience too sharp a rise, households will face problems meeting higher loan repayments in a weaker leasing market. This would have an adverse impact on Singapore’s property market.
Tweaks to cooling measure unlikely to happen in the short term
Singapore’s government might be persuaded to ease the property market’s cooling measures should residential home prices continue dipping in 2016. Knight Frank and Jones Lang LaSalle believe the government might be considering easing cooling measures despite their official stance of maintaining the status quo, especially in light of Singapore’s slowing macroeconomic growth, falling home prices and higher mortgage rates.
Ong Teck Hui, National Director of Research & Consultancy at Jones Lang Lasalle in Singapore, says home prices might dip by as much as eight per cent in 2016 should the country experience a severe economic slowdown. On the other hand, Knight Frank expects home prices to dip three to six per cent in 2016.
Ong believes that property cooling measures will be tweaked gradually to prevent the property market from overheating. He says the government will likely start adjusting cooling measures by scaling back on the additional buyers stamp duty for locals and permanent residents, with adjustment more likely to happen in the later part of 2016 rather than earlier.
Mortgage debts in Singapore expected to rise
Debt levels in Singapore are expected to rise with more homes becoming available.
According to Maybank Kim Eng, there has been an upward trend in Singapore’s household liabilities since 2009. As of September 2015, the mortgage debt to residential property assets ratio was at 26.9 per cent, well below the record high in June 2005, but still on the high side.
A Maybank Kim Eng report says debt levels are expected to grow even more due to the wave of new homes slated for completion over the next few years.
Maybank Kim Eng believes that Singapore’s government will not allow property prices to fall beyond 15 per cent of their recent peak as most debt is backed using housing assets. Should home prices fall drastically, debt leverage will rise to undesirable levels, hurting other parts of the economy. Maybank Kim Eng estimates that the mortgage debt to property assets ratio will rise to 31.7 per cent (close to the historic 2005 high) should property values dip 15 per cent.
Chinese investors look overseas amid woes in domestic stock market
Amid volatility in the Chinese stock market and depreciating yuan, Chinese investors are likely to turn towards overseas property investments in markets like Vancouver, Canada, the United States and the United Kingdom in search of a safe haven to safeguard their wealth.
Significant portions of Chinese wealth are already in overseas property investments in the UK, Australia and the US. The US property market has been extremely attractive to Chinese investors for an extended period. Currently, the biggest foreign buyers in the US property market are the Chinese, who accounted for USD28.6 billion worth of real estate investments in 2015.
Australia’s home building boom is starting to cool, possibly signaling difficult days ahead in 2016. According to government data, November new home building approvals slid 12.7 per cent; the steepest drop since late 2012. The main contributor of this drop was the 23 per cent reduction in multi-unit sector approvals.
In recent years, the strongest performer has been high-rise developments, driven in part by scorching demand from Asia. However, analysts are concerned that there will be excessive unsold apartments as demand fails to keep up with supply.
Home building activity will affect sectors including employment, retail spending, as well as finance. With the Reserve Bank of Australia relying on the housing industry to plug the gap left behind by a declining mining industry, it seems headwinds can be expected in 2016 with Australia’s building industry cooling at a bad time.
In a bid to attract foreign investments, Indonesia has allowed foreigners to own houses for up to 80 years, with President Joko Widodo signing a regulation in late 2015 allowing foreigners the right to buy a landed house for 30 years with the possibility of a 50 year extension.
According to the Cabinet Secretariat, for foreigners to qualify for home ownership in Indonesia, one has to live, work or invest in Indonesia and be “providing benefit” to the country. Previous rules dictate that foreigners could only buy houses for 25 years with the possibility of an extension of 25 years.
Hong Kong’s property prices expected to dip 10 per cent in 2016
According to CLSA Ltd., a “price war” between developers offering discounts to sell off homes amid rising supply might lead to monthly price falls of three per cent in the property market for Q1 2016. CLSA says a price correction of eight per cent can be expected in Q1 2016 and price declines will likely occur in the first half of the year.
Overall, Hong Kong property prices can expect a ten per cent fall in 2016, and price declines might lead to policy makers responding with policy changes.
Developers have avoided outright price discounts, opting to offer hidden discounts such as stamp duty rebates and inducements, including mortgage financing to homebuyers. However, according to the CLSA report, the obvious price declines expected makes such hidden price cuts meaningless. In addition, the report added that with prices expected to sink 18 per cent between Q4 2015 and June 2016, investors should keep a lookout for likely policy responses by Hong Kong’s government in the
Mortgage rate declines drives U.S home applications
Data provided by Mortgage Bankers Association (MBA) shows that as mortgage rates fell from their peak, applications for U.S. loans to refinance and purchase homes saw its largest weekly rise in more than three months. The association’s gauge on overall mortgage application activities hiked 21.3 per cent to 398.5 in the week ended 8th January, seasonally adjusted to the week earlier. This represents the greatest increase since early October’s 25.5 per cent hike.
Lynn Fisher, MBA’s Vice President of Research and Economics said, “bolstered by strong fourth quarter growth in jobs and continuing low rates, the results are similar to levels we saw in early December, suggesting that the purchase market’s strong finish to 2015 may be continuing”.