Week in Review – 24 June 2016

Local Property News
Property sales promising, but market remains weak
The property market saw an upturn with 1,056 private homes sold last month, the highest volume of private home sales recorded in almost a year. In total, 3,223 new private residential units were sold between January and May 2016, a 3.3 per cent hike year-on-year. Analysts cautioned against assuming the market is in recovery as luxury markets are still seeing a struggle. A Knight Frank House View report revealed that of the 25 prime homes that were auctioned in Q1, close to half (12) were offered under mortgagee sales as home owners faced difficulties financing their loans.
Mr Ku Swee Yong, CEO of Century 21 Singapore, told TODAY that the increase in transactions were mainly for properties sold at prices below their launch prices, indicating distressed sellers. He added that buyer activity driven by reduced prices and a weak rental market does not signal a market recovery. Dr Lee Nai Jia, Southeast Asia Regional Research Head of DTZ, said the uptake of units has mostly been among one- and two-bedroom apartments under S$2 million – heightening the competition for tenants in the strata, as investors tend to rely on rental income to supplement the cost of their home purchases. Ms Tay Huey Ying, Head of Research and Consultancy at JLL, pointed out that although sales in May reached a 10-month peak at 1,056 units sold, it is the weakest first-half peak since 2014 – with 1,488 units sold in May 2014 and 1,167 units in May 2015. Seasonal trends in the past reveal that property sales tend to peak in April and May before a lull during the June holidays. 
Prices of private residences have corrected approximately 9.1 per cent since the peak in 2013 due to loaning curbs and higher costs of homes. However, with the expected entry of another 12,760 homes from Q2 2016 to 2017 on top of the existing 20,516 units currently available, prices are expected to be corrected further. Mr Lock Mun Yee, an analyst from CIMB, believes that home prices will correct five to eight percent in 2016 as a result of an unsold supply of homes that have built up, along with developer expectations of facing penalties from Qualifying Certificate (QC) and Additional Buyer Stamp Duty (ABSD) next year. Mr Vijay Natarajan, an analyst from RHB Securities, also expects the trend of developer discounts to persist this year. He cautioned that the Government will be mindful about letting up on cooling measures. Despite that, he believes sales volumes for 2016 are expected to exceed that of 2015, citing improved performance of developer sales in the first five months of the year compared to the same time period in 2015.

More office deals amid falling rents and rising vacancies
M+S has announced that Marina One, a mixed-use development located at Marina Bay financial district, has secured 550,000 square feet of office leases and sold more than 90 per cent of its residences in the first tower since its launch in 2014. M+S is a collaboration between Malaysia’s Khazanah Nasional and Temasek Holdings. The upcoming offices offer one of the largest office floor plans in the district of about 34,000 to 40,000 square feet. The 3.67 million square feet plot due for completion in 2017 includes 1.88 million square feet of Grade-A office space, 140,000 square feet worth of retail spots, 65,000 square feet of greenery, and 1,042 luxury homes. 
Separately, ARA Asset Management is placing a bid for a 50 per cent stake at the Capital Square office tower from Alpha Investment Partners, Keppel Land’s investment arm. Alpha, together with NTUC Income, procured the 16-story Grade-A prime office tower located in the central business district at Raffles Place from Munich Re in 2011 for S$889 million, about S$2,300 per square foot. Donald Han, Singapore-based Managing Director at Chestertons, believes that the 50 per cent stake is worth approximately S$2,500 per square foot today, totalling S$415 million. Mr Han said that the sale will not be at a “premium price” as the buyer is only acquiring half of the tower. 
The incoming office plots will be up against an oversupply of 3.55 million square feet of offices expected to be completed by the end of the year. URA data showed that national office vacancy rates stood at 9.2 per cent in March 2016, with office vacancies at Marina Bay at eight per cent in the second quarter of the year. 

Developers resort to creative ways to move units
Extension charges for selected private residential projects are looming, driving developers to come up with creative ways to drive sales of remaining units. On top of Ardmore 3 units which were reported previously to be selling at discounts of up to 30 per cent, units at projects like OUE Twin Peaks are also being offered at discounts of 15 per cent with an option for deferring payments. More than 100 units at OUE Twin Peaks have been sold since these sweeteners were given. Even more recently, CapitaLand offered 15 per cent discounts on both The Interlace and d’Leedon developments. 
Meanwhile, TG Development has resorted to launching a rent-before-you-buy scheme for its upcoming 76-unit condominium, Lloyd Sixtyfive, located near Orchard Road. Potential buyers are required to undertake a two-year lease and pay an upfront rent of 10 per cent of the home’s price in advance, as well as a 2.5 per cent refundable deposit. A full refund of rental and deposit payments will be given should the renter decide to convert the lease into a property purchase. This is subject to availability as there is no option to reserve units. If tenants decide against buying the unit after the two-year lease, their deposit will be returned in full. The average asking price of the homes is about S$1.62 million, translating to S$2,760 per square foot – bringing the monthly rent to about S$6,750. Only 20 one-bedroom and one-bedroom with accompanying study units will be available under this scheme. The flexibility of deferred payment schemes allow potential buyers to consider their purchases and make the necessary financial arrangements before making the purchase. 
According to an RHB report, the trend of price discounts on developments is likely to persist for the rest of 2016. Private property prices are expected to drop three to five per cent this year, with prices having dipped 0.7 per cent in Q1 2016.
Global Property News

US surpasses UK as top investment destination for Middle Eastern investors
According to the 2016 Invesco Global Sovereign Asset Management Study, the United States has surpassed the United Kingdom as the most attractive investment market for Middle Eastern investors with a rating of 8.3 out of 10, compared to 7.1 for the UK. Real estate has gotten a bigger slice of the investment pie, up from 5.9 per cent in 2013 to 9.8 per cent in 2015, indicating growing demand for real estate acquisitions over other assets to diversify portfolios and meet return goals. The shift towards property investments can be attributed to it having trustworthy global asset facilitators, a large network of developers and operators to tap on, as well as the overall process being easier than private equity and infrastructure investments.  
Middle East sovereign investors reported that the US was receptive to their investments as sovereign investment flowed into the US finance sector during the global financial crisis. Many also cited encouraging global investment policies such as an exemption for ‘qualified foreign pension funds’ introduced this year for property purchases. Middle Eastern investors are also increasing focus on Asia and Africa, with allocations in investments in Asia rising from 1.5 per cent in 2014 to 2.3 per cent in 2015, and from one per cent to 2.6 per cent in Africa during the same time period. Key driving factors for interest in these regions were said to be “manufacturing capability, political stability, and the quality of infrastructure”. 

US home sales reach nine-year high of 1.8% in May
US home sales increased 1.8 per cent to a seasonally adjusted rate of 5.53 million in May from the month before, its highest monthly increase since February 2007, according to the National Association of Realtors (NAR). Combined with the low inventory of available homes, median home prices went up by 4.7 per cent annually to US$239,700 – a record-high. Lawrence Yun, Chief Economist of NAR, believes that trade-up buyers are the drivers behind the increase in existing homes, especially with the attractive low mortgage rates. The current 30-year fixed mortgage is at its lowest in three years, averaging 3.60 per cent in May 2016, according to Freddie Mac, a mortgage finance firm in the US. Despite rising home sales in three consecutive months, available inventory at 2.15 million homes is 5.7 per cent lower than it was in May 2015. 
Economists recommend developers to speed up creation of new homes to fulfill the surging property demand as price appreciation is expected in the coming months. Kristin Reynolds, a US economist at IHS Global Insight in Lexington, Massachusetts told Reuters, “We expect moderate price appreciation to increase homeowner equity, encouraging inventory expansion and sustaining the pace of existing home sales through 2016.”  June home sales are also likely to increase further. A Mortgage Bankers Association report revealed that mortgage applications rose by 2.9 per cent in the second week of June. 

Pound and London home prices fall as Brexit looms
With the Brexit referendum nearing, UK home prices continued to rise in June, increasing by 0.8 per cent to a £310,471 average with the exception of London, which saw home prices fall 0.2 per cent, according to Rightmove. The number of home transactions in prime districts of central London reached a 10-year low in April and May, according to broker Huntley Hooper Ltd. Miles Shipside, Director of Rightmove, told Bloomberg that this was due to the tax imposed in April by Chancellor of the Exchequer George Osborne to aid first-time home owners competing for a home, as well as the speculation surrounding Brexit. The average number of days it takes to purchase a home has dropped to a record low of 57 days, with UK house prices 5.5 per cent higher year-on-year this June. Foreign investors made up 47 per cent of purchases of luxury homes in London during Q1 2016, a drop of 54 per cent year-on-year, according to broker Hamptons International.
Amidst the lack of London housing demand, London developers are banking on a weaker sterling to entice global buyers should Brexit happen. Faisal Durrani, Head of Research at broker Cluttons, said in an interview with Bloomberg that the British currency could fall 10-30 per cent against the dollar within one day of Brexit, encouraging buyers to purchase properties they have been eyeing. Alasdair Nicholls, CEO of developer Native Land, told Bloomberg that while a weaker Sterling might lead to a short-term boost, a leave vote could affect UK housing demand and prices in the long-run. According to Cluttons, regardless of the referendum outcome, London property will remain attractive to Gulf investors due to its rich economy, stable legal system, and housing prices that rise dependably. 

Toronto high-rise home sales soar as low-rise supply reaches record low
According to the Build Industry and Land Development Association (BILD), transactions of newly launched high-rise units in Toronto, Canada soared to 3,623 in May 2016. This was an increase of 76 per cent year-on-year to the second highest number of new high-rise home sales since November 2011. It comes amidst a decrease in the supply of new homes, now down to 19,209 compared with 29,754 a decade ago. At the same time, the average price of a new low-rise unit in Greater Toronto surged to a record high of $875,154. The supply of low-rise homes dipped to a record low of 1,985 compared to 16,420 ten years ago. The inventory of high-rise buildings is on the rise however, with 17,224 units available in May 2016 compared to 13,334 in May 2006. Bryan Tuckey, President and CEO of BILD, told OPP Today that the property industry is following guidelines of the Province’s Growth Plan that aims to increase high-rise development in Greater Toronto, with nine out of 10 new residential units available for sale being high-rise and mid-rise condominiums. The sale in high-rise homes increased 76 per cent in May year-on-year, and was almost double that of the decade-average of 1,896. Average prices of a new high-rise units went up by three per cent year-on-year to $454,304, bringing the average price per square foot up by three per cent to $573. The data was released after Canadian Prime Minister Justin Trudeau hinted that the surge in property prices could be attributed to global investors from Asia. 
High demand for landed homes in Iskandar
Local and foreign buyers alike are choosing landed homes over high-rise buildings in Iskandar. Mr Stanley Saw, Divisional General Manager of SP Setia Bhd (Property South), said in a press conference during the SP Setia World Environment Day 2016 that the Iskandar’s popularity among buyers stems from the advancement of Malaysia’s first economic growth corridor. In August, the company will be launching about 400 units of private landed property in Bukit Indah, comprising 183 units of double-storey terrace residences with prices ranging between RM670,000 and RM900,000. Of these, 110 units have a floor area of about 1,900 to 2,000 square feet. Two mixed-use developments at the Bukit Indah site will also be launched this year – including a hotel and retail mall with a total gross development value of RM 1 billion. Another 352 landed homes under Rumah Mampu Milik Johor (RMMJ) in Setia Eco Gardens Jalan Ulu Choh-Pontian will also be launched, each priced at RM139,000.