Vacancy rates and housing prices in 2016
Barclays expect the vacancy rate of Singapore’s housing market to peak at ten per cent in 2016. The rising vacancy rate, together with interest rate hikes that will likely push prices down by a further five to eight per cent in the next year, might lead to cooling measures being eased.
Vacancy rates have risen 2.6 per cent to 7.8 per cent since 2013, while rentals have fallen 6.7 per cent. Considering the current market’s mild take-up rate, the Monetary Authority of Singapore (MAS) estimates unsold supply taking approximately 3.1 years to be cleared.
According to an OCBC report, primary residential sales in 2016 is expected to stay in the range of 6,000 to 9,000 units, with buyer numbers increasing significantly when prices are lower.
Between 2016 and 2017, Singapore home prices will probably be influenced by sustained oversupply, rising floating mortgage rates, and a possible easing of cooling measures.
Greater number of large landed and non-landed homes put up for auction
A Colliers report noted that Singapore’s auction market in 2015 prominently featured repossessed landed homes and large condominiums. 2015 saw 50 landed homes put up for auction, of which, 26 of them had land areas bigger than 3,000 sq ft.
Likewise, non-landed homes, consisting of apartments and condominiums, saw mortgagee listings increase 36.5 per cent, from 104 units in 2014 to 142 units in 2015. 27 of these mortgagee listings were situated in prime residential districts. Deputy Managing Director of Colliers International, Grace Ng, attributed this large increase to dampening buying interests, compounded with concerns of affordability stemming from restrictive loan curbs. She added that owners are having difficulty securing tenants in a weak rental market, due to supply issues and smaller housing budgets for expats.
Increase of US Federal Reserve rates and its impact on Singapore
The US Federal Reserve has increased benchmark interest rates by 25 basis points, the first increase in seven years. According to analysts, subsequent higher borrowing costs will have a negative impact on Singapore’s slowing economy. Effects of the adjusted interest rates includes reduced domestic consumption and lower employment as households and businesses deal with higher costs of borrowing.
According to BMI Research, high household debt is the biggest issue which can potentially soften Singapore’s domestic consumption. Household debt is now approximately 150 per cent of household income. The higher borrowing costs might have repercussions on lower income households and those who have over-extended themselves to be part of Singapore’s housing boom.
Nonetheless, Singapore is well-positioned to deal with problems arising from higher rates, with the Singapore Interbank Offer Rate (SIBOR) and Swap Offer Rate SOR) rising in advance behind chatter of federal rate rise and a stronger US dollar. These rates are likely to rise higher, though at a modest pace. With indication that federal rates will be increased gradually, financing costs from increased rates are unlikely to be drastic.
Analysts believe that the slowing economy provides the government a good opportunity to tweak cooling measures without having to fear market spikes. Nicholas Mak, Executive Director of research and consultancy at SLP International, believes that if the government is wary of rapid price rebounds after cooling measures are relaxed or removed, the best time to tweak these measures would be when the economy is slow or during a recession, since housing demand would already be weaker under these circumstances.
The United States has recently eased a 35-year-old tax on foreign investment in the country, which potentially opens the US to greater property investments by overseas investors – a major source of capital for the country since the financial crisis.
The US has waived tax imposed on foreign investors under the 1980 Foreign Investment in Real Property Tax Act (FIRPTA) for foreign pension funds, treating it the same as domestic pension funds for real estate investments. This modification could result in billions of new capital flows into US real estate. The new law also permits foreign pensions to purchase up to ten per cent of a US publicly traded real estate investment trust, without having the liability of FIRPTA – an increase from five per cent prior to the change.
According to Real Capital Analytics Inc., cross border investment in US real estate in 2015 amounts to 16 per cent (USD78.4 billion) of the total US$483 billion in US property investments; an increase from merely US$4.7 billion in 2009.
Meanwhile, New York is an increasingly preferred destination for international investors, with prime property prices on average half the per square foot price of prime homes in Central London. Residential property provides great value for high net worth buyers from the UK, France and the Middle East, who are typically looking for holiday homes and investment opportunities.
Lower-than-expected US single family home sales in November, while existing home sales drops significantly due to new mortgage disclosure rules
The US Commerce Department reported this week that single family home sales rose to 490,000 units in November from 470,000 in October. This was smaller than the 505,000 units that Economists expected in November, suggesting a loss of momentum in the market.
In the same week, data from the National Association of Realtors showed that sales of existing homes dropped 10.5 percent to 4.76 million units in November, the sharpest drop in 19 months and far lower than the 5.3 million estimated by analysts. NAR chief economists Lawrence Yun suggested that the rate decrease might be due to transactions being pushed to December instead of November, due to new US government mortgage disclosure regulations that were delaying contract closings.
He also added that the US interest rate increase would have minimal impact on mortgage rates, but cautioned that this will cause home prices to continue to rise and that wages and new home supply needs to increase in order for homes to remain affordable.
APAC property set for growth in the next decade
Asia Pacific’s property industry is expected to experience increasing growth in the next ten years, with huge investment opportunities, according to speakers at the MIPIM Asia property leaders’ summit. However, the industry does face short term challenges, such as a looming recession, social unrest as well as terrorism.
Overall, investors and developers acknowledge the slowing Chinese economy. Even so, APAC has better conditions set for growth compared to other parts of the world, particularly since China is becoming more of a domestic consumption-oriented economy.
Gloomy outlook for Malaysia’s property market in 2016
With weak economic growth and dimmer financing anticipated, outlook of Malaysia’s property market is gloomy, according to prominent investment consultant Datuk Gavin Tee.
Malaysia has been affected by political and racial issues over the past year, and this has led to potential buyers reconsidering the safety of their investments in the country. In 2015, property prices in the secondary market had fallen by up to 15 per cent due to softer demand and the lack of investors in the market. 2016 is expected to see the slide in 2015 continue.
While property prices are unlikely to slide below 2009-2010 levels, prices in 2016 is likely to be the lowest for the next eight years.
According to Knight Frank, Australia’s property market in 2015 saw sales volume, capital values and rents rise. From year to September, sales volumes of Australian apartments have increased 5.9 per cent to 163,988, while gross rental yields averaged 4.64 per cent.
Greater Brisbane and Greater Melbourne are likely to experience larger capital growth in 2016, whereas Greater Hobart and Australian Capital Territory (ACT) have shown potential for an upswing in capital growth in the medium term.
A projection of yields over a period of five years show current yields in Greater Sydney, Greater Brisbane and Greater Perth at the lower end of the range.
UK property attractive to Indian investors
Property investors from India make up one of the strongest forces in the overseas property sector. With stronger economic ties between UK and India, the real estate sector is set to benefit too.
Indians are becoming one of the pivotal buyers from emerging countries in the near future, with London their top overseas property investment destination. Indian buyers typically have deep ties with the UK as many were educated there, have relatives in the country or are “staycation residents”.
The past five years saw Indian buyers becoming major investors in London’s residential property market, and are now the second biggest overseas buyers of homes that cost more than £5million. Investments from India outweighs the combined investments of the rest of the European Economic Community, making India the third biggest source of direct foreign investments. With India on the rise to becoming the world’s third largest economy by 2024, it represents the investment potential that the UK can tap into.