At the Federal Open Market Committee (FOMC) meeting, the US Federal Reserve announced that interest rates will increase by 0.25 per cent – the first rate hike since 2006. Speculation of a rate hike has been ongoing for some time, and global markets have already made adjustments for it.
There are concerns that borrowers will get caught off-guard with the interest rate hike. Through the implementation of the Total Debt Servicing Ratio in 2013 however, Singapore’s government has been promoting financial prudence, discouraging excessive debt. The higher federal rates are expected to have a sizable impact on mortgages, since compared to household incomes, quantums for mortgages are relatively larger. Those who entered the property market when prices were on the high side are likely to be more affected.
Cooling measures in 2016
According to Credit Suisse, the eight rounds of cooling measures implemented by Singapore’s government have been effective in controlling speculative property purchases. As a result, there are less than 50 sub-sales per month currently, accounting for two to four per cent of total sales volumes, as compared to the peak of over 300 sub-sales each month in 2010, or ten per cent of total sales.
Credit Suisse expects that this reduction in speculative activity, together with the dip in foreign demand, will push Singapore’s government into easing cooling measures in 2016.
On the other hand, BMI Research believes that the government is hoping for a further property market correction before easing up on the cooling measures, while RHB analysts raised concerns of excessive supply in the market, as well as rising vacancies.
Sale of new private homes hiked 39 per cent in November compared to October, contributed by high uptake in the newly launched The Poiz Residence. As developers face pressure to clear stock to avoid paying Additional Buyer’s Stamp Duty, prices are expected to drop while transaction volumes rise.
Despite November’s strong numbers, transactions are expected to go downhill until the Lunar New Year. With the festive season nearing, November’s strong sales numbers could be the last peak before a decrease in sales at the end of the year. Nevertheless, November’s numbers indicate buyers accepting that cooling measures are not going to be relaxed soon, and are going back into the property market.
More HDB homeowners upgrading, with weaker private property market
In 3Q 2015, private residential units saw more buyers with HDB addresses. According to DTZ, there was a 20.5 per cent year-on-year increase in buyers with HDB addresses, with approximately half of them purchasing units similar to the size of 3-room HDB flat, at smaller than 69 square meters. Historically speaking, the number of buyers with HDB addresses tends to increase when the private property market is weaker. An increase in the number of HDB upgraders is expected in subsequent quarters, as HDB homeowners who purchased their flats in 2010 to satisfy their 5-year minimum occupation period (MOP) can still enjoy capital gains if they sell their HDB flats.
More government support to help former flat owners get a fresh start
The Housing Development Board is exploring ways to enhance the Fresh Start housing scheme.
The Scheme is meant to help second-timer families own a flat, in three main ways. First, these families can expect to pay less through the scheme. Second, the option of providing another HDB concessionary loan is being considered, to ensure that these families are able to secure loans required for home purchases. Third, HDB is considering offering 2-room Flexi-flats on shorter leases through the Fresh Start Housing Scheme.
Currently, 2-room Flexi-flats are available only to the elderly. Due to the short leases of these flats, they are more affordable to second-timer families, and the government is exploring the possibility of using these flats for families who require help. The catch is however, that these flats might have a longer Minimum Occupation Period.
As an incentive for these families to work hard and manage their finances, disbursing housing grants over a period of time, contingent on meeting certain conditions as opposed to a single lump-sum payout, is being considered.
London has experienced the strongest growth in house prices compared to other cities. However, the market is increasingly restricted to buyers who are affluent. As a result, less expensive locations outside the country’s capital are gaining more attention from buyers who have been priced out of London, with property prices in Central London expected to stagnate in 2016.
Compared to expensive locations in London, attractive commuter towns have the potential for good medium-term price growth. Quality second-hand homes centrally located in regional cities, traditionally preferred by graduates who need not rely on welfare payments for their rentals, can expect higher yields compared to London. Furthermore, improving employment rates in the region should also increase tenant demand.
Prices of property in Hong Kong to slide despite best efforts of developers
Property developers in Hong Kong are enticing investors to purchase property by offering rebates, hidden discounts and second mortgages. Wary that price cuts might lead to a sharp reverse in property market gains, developers reluctant to provide outright price cuts have taken to these measures to woo buyers. On top of hidden discounts, developers are also acting as money lenders. Some developers are offering up to 90 per cent financing through associated finance companies. Despite developers’ efforts at maintaining property prices, Colliers International Group forecasts the property market will experience a 15 per cent dip in 2016.
US homebuilder confidence dipped in December, with developers concerned about the rising costs of land and labour. While the previous year saw America’s property market experience strong gains, limited wage growth has resulted in a cooling market. With housing prices increasing faster than wage growth, more are turning to renting.
Despite the softened sentiments of builders, the housing market is expected to gain traction in 2016.
The US Central Bank’s raising of benchmark interest rate to between 0.25 per cent and 0.50 per cent – the first increase in rates in close to a decade, signals confidence in the US economy. The increase in borrowing costs is unlikely to impede US housing recovery, as authorities have reassured tightening measures will be implemented gradually. Rates are still considered low by historic standards.