Three factors that might increase demand for residential property
According to Maybank Kim Eng analysts, three factors might reverse Singapore’s soft housing demand. First, a review of the country’s population growth, which has slowed due infrastructural strains arising from the population influx. The review might be possible considering steps have been taken to ensure Singapore’s infrastructure can provide for a bigger population, including housing.
Second, a review of the country’s foreign-worker policy might raise demand for housing. With a better economy and job creation, there could be room for increasing the number of work-related passes issued to foreign workers. Demand for housing will rise with more work passes issued to foreigners.
Third, as the government is controlling land supply available for development through the Government Land Sales Programme, there could be a revival of the en-bloc market if developers look to the private land market to replenish their landbanks. Demolition rates might rise as a result and partially correct the market surplus.
Expect supply glut to worsen till 2018
Maybank Kim Eng expects that there will be 41,400 homes injected into the property market each year for the next three years. This is expected to comprise of 14,900 private condominiums, 4,400 executive condominiums and 22,100 public houses. The rate is double that of the 21,800 new houses per annum in past ten years, meaning developers will have to deal with the problem of oversupply of new homes during this period of time. This increase in supply could lead to easing of cooling measures.
Maybank Kim Eng further added, should cooling measures be eased, the policies most likely to be reviewed are the Additional Buyer’s Stamp Duty (ABSD) and loan-to-value ratio (LTV).
The ABSD, currently a 15 per cent levy for second/third home buyers on citizens and PRs could be reduced across the board as the country seeks foreign capital to absorb market surplus. The LTV has become redundant after the implementation of the total debt servicing ratio (TDSR), which ensures financial prudence.
Better year-on-year sales in December not indicative of changing sentiments
Sales volume of condominium units dipped 49 per cent month-on-month in December, as developers sold only 384 units.
However, Barclays believes that there is still strong underlying demand and sales are expected to increase in the following months as prices drop further. This is because the number of units sold is the highest December sales since December 2012, and price drops have slowed, with the 2015 full-year decline at 3.7 per cent as opposed to the four per cent decline in 2014. The increase in sales and slower price drops could be due to developers’ efforts in clearing existing inventory.
Foreign purchase of Singapore homes lowest in seven years as Chinese buyers stay away
Purchase of Singapore homes by foreigners have decreased in the Q4 2015. According to DTZ, foreigners bought 499 homes during this period of time, accounting for approximately 16 per cent of total transactions. Comparatively, before the implementation of additional buyer’s stamp duty (ABSD) in Q3 2011, foreign buyers accounted for more than 30 per cent of total transactions.
One of the biggest contributors to the drop in foreign purchase of Singapore property was the decrease in property purchases by buyers from China, who are among the biggest buyers of private homes in Singapore. The Chinese merely purchased 151 units between October and December 2015, a plunge of approximately 40 per cent year-on-year and 80 per cent from the peak in 3Q 2011. Alan Cheong, senior director of research and consultancy Savills Singapore, said that “Chinese money is being attracted by Australia and the UK”, and that stamp duties in Singapore need to be adjusted to attract Chinese funds while avoiding hot money.
Global demand for luxury residential property falls
Globally, demand for prime residential property is slowing. Knight Frank expects average prices of luxury homes in the 10 cities analysed to slide 1.7 per cent in 2016, a slower growth compared to the three per cent growth in 2015.
Foreign investors that helped to drive growth in the luxury residential property market are now being affected by weakened currencies, market shocks and diving oil prices, resulting in softer demand for prime residential property.
In the U.K., an increase in stamp duty charge on high-price sales as well as new taxes levied on second homes and rental properties will be implemented from 2Q 2016. In the United States, demand for luxury homes (properties over $20 million) have softened due to the stronger US dollar, resulting in investors from South America and Europe potentially putting their property purchases there on hold. House prices are expected to fall in markets such as Hong Kong and Singapore as well, contributing to a gloomy global property outlook.
Survey shows confidence in American property market
The 2016 Foreign Investment Survey for Association of Foreign Investors in Real Estate (AFIRE) finds that the United States has the strongest and safest market for real estate investment. Even with concerns of rising interest rates, 64 per cent of respondents expect to increase their US real estate investment in 2016, and 31 per cent said they would either reinvest or maintain investments at their current levels. No one plans a major decrease. A separate survey by Wisconsin School of Business showed that 66 per cent of respondents believe the US provides the best opportunity for appreciation of capital.
Domestically, a Commerce Department Report showed a 2.5 per cent drop in housing starts, from November 2015’s 1.18 million to 1.15 million in December.
The housing market’s performance in 2016 will be determined by progress of the job market. In the longer-term, demand is anticipated to rise with more young adults seeing their financial statuses improve and start purchasing entry-level homes.
Even with the Federal Reserve raising benchmark interest rates for the first time since 2006, borrowing costs are expected to remain low and the central bank has indicated interest rate changes will be gradual.
Continued price falls might lead to Hong Kong tweaking cooling measures
According to a Bank of America property analyst, the Hong Kong Monetary Authority (HKMA) will likely ease restrictions in place on down payments for home buyers in 2016 if property prices continue falling. Prices have decreased 8 per cent since September.
Raymond Ngai, head of Greater China property research at Bank of America’s Merrill Lynch unit says easing of restrictions will likely happen should house prices fall by a further five to 10 per cent.
Analysts such as Alfred Lau at Bocom International Holdings Co. expect home prices to fall up to 30 per cent in 2016 with increase in property supply and speculative pressure on Hong Kong dollar exerting an upward pressure on short-term interest rates.
However, Ngai believes other measures in place to control demand, such as stamp duties that might add up to 23 per cent to the cost of foreigners purchasing a luxury apartment, will remain implemented for some time.
Expect strong growth in Indonesia’s property market
Chairman of property industry group Realestat Indonesia (REI) Eddy Hussy said that in 2016, growth of Indonesia’s property sales is expected to be approximately 10-12 per cent, accelerated from the seven-eight per cent growth in 2015.
Factors that will help accelerate Indonesia’s property sales growth include stronger economic growth, government stimulus packages put in place and developments in infrastructure.
Indonesia’s economic growth in 2016 is expected to be approximately 5.2 per cent. In Q3 2015, the economy experienced its slowest growth since 2009 at 4.7 per cent. In a bid to improve the economy, the Indonesian government has been implementing stimulus packages such as easing on house ownership permits for foreigners. To encourage economic growth, Bank of Indonesia has also reduced interest rates; the first in eleven months.
Tax changes in UK property
Details of raises to property taxes in the UK announced in November have been revealed. The proposed tax resembles Singapore’s Additional Buyer Stamp Duty (ABSD), which levies a tax on second home purchases. For investors purchasing second homes or investment properties in England, Wales or Northern Ireland, existing rates have been increased by three per cent under the proposed tax. The tax increase has the potential of increasing investors’ purchase costs by approximately £17,000 pounds, assuming the second property being purchased costs £650,000
The tax revisions would stand at three per cent on the first £125,000, five per cent on the next £125,000, and eight per cent on the balance up to £925,000. Between £925,000 and £1.5 million, a tax of 13 per cent will be levied, and the balance above £1.5 million will be taxed 15 per cent.
UK authorities, in calculating taxes, factors in any residential property that investors own, regardless of where the property is located at. Therefore, if an investor owns a property in Singapore, the increased tax rate applies when the investor purchases a property in the UK, even if the investor does not own property in the UK.
However, the rise in stamp duties can potentially benefit the London’s Ultra Prime rental sector. According to Turnstall Property, the additional costs incurred from stamp duty adjustments can be covered after renting the property out for three years.
Prime sales market for 2016 is set to experience zero per cent growth in property prices, as the outlook of prime sales market does not seem attractive for investors. However, ultra-prime rentals are increasingly popular for national and international investors, and they are shifting their focuses to the rental market, at least till the sales market shows that the increased stamp duty cost is justifiable with higher return of investment.