Outlook for private residential property market
According to the Urban Redevelopment Authority (URA), Q3 2015 saw the eighth quarterly dip in private residential property prices, a 1.3 per cent quarter-on-quarter (q-o-q) decline. This is a greater decline compared to Q2 2015, when quarterly prices fell 0.9 per cent.
Price drops were recorded in all segments of the private property market. Core Central Region (CCR) non-landed properties fell 1.2 per cent q-o-q, Rest of Central Region (RCR) and Outside Central Region (OCR) saw prices dip 1.6 per cent, while landed properties saw a 0.4 per cent decline.
URA says there are 72,888 private residential units (including ECs) in the pipeline. Q4 2015 will see 6,296 units, including ECs, being completed, while 23,149 units, including ECs, will be completed in 2016.
At a glance: Singapore Residential Price Index and HDB Resale Price Index
According to flash estimates from the Singapore Residential Price Index, (SRPI), the overall resale price of private homes rose 0.1 per cent on-month in September. The SRPI, compiled by the National University of Singapore’s Institute of Real Estate Studies, further stated that prices of small units, which have a floor area of 506sqf or below, led the rise with a 0.4 per cent increase.
The Housing Development Board (HDB) in its press release said that HDB flat resales saw a continued decline in Q3, with the Resale Price Index slipping from 135.0 in Q2 2015 to 134.6 in Q3 2015 (0.3 per cent). The number of transactions also slid by 7.4 per cent in the third quarter, together with resale transactions which fell from 5,286 to 4,893.
Renewed Interest in property auctions in Q3
Property auctions in Singapore are gaining momentum, with residential property buyers turning their attention to auctions to find good deals.
A report by Knight Frank stated that 222 units were put up for auction in Q3 2015, a first since 2010, when the number of units auctioned crossed the 200-mark. Residential units made up the highest number of successfully auctioned properties, with nine units successfully auctioned, accounting for S$31.6m, or 69.3 per cent of the total sales value. Out of the nine residential properties transacted, only one was a landed property. According to Knight Frank, the number of properties up for auction and mortgagee sale is set to rise, due to continued market uncertainties.
Occupancy rates expected to fall
Property investors waiting for cooling measures to be lifted may have to continue waiting, as holding costs are rising in sync with interest rates. With rents likely to remain low in less than favourable market conditions, bargains are less likely to surface for investors. Celine Chan, an analyst from Orange Tee, observed that with tweaks to Government Land Sales made in recent years, as well as a heightened demand for new launches, there has been a drop in unsold inventories. For the Core Central Region (CCR), unsold inventories dipped from 1,917 units in Q2 2015 to 1,261 in Q3 2015.
The high end property market is an attractive investment for potential investors, with prices having dropped considerably from their peak. Ms Chan believes occupancy rates will start falling due to the increase in supply of residential units coupled with tightening foreign labour conditions, which restrict demand.
According to Knight Frank’s Global Cities: The 2016 Report, Singapore now has the largest investments in the property sector in the US, UK and Australia, with China and Malaysia coming behind as second and third respectively. Total Asian investments into the US, UK, Australia and continental Europe amounted to US$78.4 billion (S$ 109.5 billion). Singapore’s investments into the U.S took the bulk of total investments, with $25.10 billion (US$10.68billion), the UK (US$6.44 billion), Australia (US$6.85 billion) and continental Europe (US$1.13 billion).
U.S house prices rise faster in August, with condos leading the way
Condo values were hit harder than single-family homes during the recession, but are now appreciating more quickly than houses.
Condo prices are up 5.1% year-on-year, with single-family home prices in the United States up 3.7%, according to the third quarter Zillow September Real Estate Market Report. Single-family home prices in the U.S. rose at a faster rate in August compared to July. 20 metropolitan areas saw a 5.1 per cent gain year-on-year in August.
The increasing rents, decreased supply of low value homes and the lure of an urban environment have led to a strong demand for condos. According to a September Real Estate Market Report by Zillow property website, condos are appreciating faster than single-family homes in nearly two-thirds of the top 35 most populated housing markets.
The best cities to live in within APAC
According to CBRE’ Global Living Report: A City by City Guide, Hong Kong is the world’s priciest residential location, where residential prices average USD1,416 per sqft. Amongst the top ten priciest residential locations are: London (USD1,025 per sqft), Singapore (USD810 per sqft) and Tokyo (USD697 per sqft).
Head of Research, CBRE Asia Pacific, Dr Henry Chin believes that global population expansion and overall growth in the international economy are core factors affecting demand for APAC’s residential market. There is a higher level of integration within the region’s residential property market, in part due to globalization and migration, resulting in more interaction between different groups of people with different cultural backgrounds.
The report also listed some of the popular residential locations within APAC, such as Bangkok, Hong Kong, Singapore and Sydney. Bangkok boasts an affordable cost of living, together with a low unemployment rate (1.1 per cent). The country also has a well-performing luxury market (30 per cent increase in prices for off-plan condominiums). Hong Kong however, has the world’s highest average property price, with prices still rising despite the implementation of cooling measures.
Similarly, Singapore still sees high average property prices (USD889,200) despite government intervention. The market however, is set to see slower growth in the future. A strong demand in Sydney, coupled with long-term undersupply, has driven up housing prices. Sydney has seen average house prices hike 12 per cent in the past year, 38 per cent higher than the national average.
CapitaLand’s development in Vietnam
CapitaLand has announced a joint venture with Saigon Commercial & Tourism Corporation, a subsidiary of Thanh Nien Corporation. The US$55 milion joint development of a site in Ho Chi Minh City’s District 2 will see CapitalLand having an 80 per cent stake in the venture. This will be CapitaLand’s sixth residential development in Ho Chi Minh City, bringing its total number of developments in the country to eight. CapitaLand has long expressed intention to increase its presence in Vietnam through investments and management opportunities.
The latest joint venture in Thao Dien Ward is two km away from the new Metro line and a mere ten-minute drive to the Central Business District of Thu Thiem.
Australia’s HNWI are big Investors of APAC Real Estate
According to a report by Capgemini and RBC, high net-worth Individuals (HNWI) in Australia invest the biggest proportion of their income in APAC real estate, compared to other regional investors.
HNWI are defined as individuals with more than USD1 million in investments and assets apart from their primary residence. The average Asian HNWI dedicates 21.4 per cent of their assets to APAC real asset, while the global average is 18.2 per cent. According to the Director of Financial Services at Capgemini Australia, Dipak Sahoo, Australian HNWIs believe they can obtain the highest returns through property investments. There are 226,000 HNWIs in Australia, with a collective wealth of USD707 billion.
Australian HNWIs are thought to be buying in bigger APAC economies, such as India, Japan, Malaysia, China and Singapore. Offshore investments by these individuals have risen 30.7 per cent in 2015 compared to 30.4 per cent in 2014. As the Australian dollar has lost value over the past year, this is seen as a significant rise.
Australian HNWIs are also buying into the local real estate market. Major advantages, such as tax free capital gains on their principal residence and tax deductible mortgage payments on an investment property, make local property investment an enticing option for Australian HNWIs.
Malaysia’s Property Market on the Edge
According to the Managing Director of Knight Frank Malaysia, Sarjunan Subramaniam, the current property market in Malaysia has been affected by several factors. He claims the weak ringgit, now at a 16 year low, the Greek crisis, rising living costs as well as political turbulence within Malaysia has led to greater caution on the part of investors.
Executive Chairman of CBRE (Malaysia), Christopher Boyd says the foundation of Malaysia’s property market continues to remains sound, and was merely adversely affected by the abovementioned developments. The upcoming budget in November will have a pivotal impact on the residential market in Malaysia. A tweak of government measures to allow buyers easier access to equity might lead to a rejuvenation of Malaysia’s property market. If cooling measures remain unchanged, Boyd expects the poor market performance to continue.
Despite market-dampening factors, analysts still believe that Kuala Lumpur (KL) is a good place to invest. Residential property investments in the country’s capital are seen as a good buy, as KL boasts good infrastructure as well as amenities including malls, restaurants, bars and parks. Several major infrastructural projects are currently being developed, including the Light Rail Transit (LRT) network extension, Mass Rail Transit (MRT) lines as well as the High Speed Rail (HSR) link. The HSR will connect Singapore and Malaysia and cut travelling time between Singapore and KL to approximately 90 minutes.
There is reason to cheer as KL’s property market is expected to see an upswing in the near future with demand still strong at the top end of the residential market – especially in desirable inner-city areas such as KLCC, Bangsar and Mont Kiara.
Golden Visas and Chinese HNWIs looking for overseas property
The United States (US) is one of the most popular destinations for investment-based residence permits, or Golden Visas. According to Ivan Chepizhko of leading Russian-based international real estate broker Tranio.co, the choice of destination is often correlated to cultural attributes of the investor’s nationality. The Chinese investors seek education, investment and residence options, and the US, particularly New York, fits the bill due to its world-class educational institutions and booming commercial property market.
While Golden Visa programmes do not attract large numbers of investors, they tend to attract HNWIs. There are 2.8million Chinese HNWIs, and most of them see investment in overseas property as a stepping stone to immigration. The affluent Chinese are shifting their assets overseas, especially to the US and UK, and Chepizhko expects to see more Chinese investors investing in overseas property due to uncertainty stemming from China’s economic instability, currency deflation and currency reforms.
The Australian buy-to-let mortgage boom has led to record household borrowing and threatens to be a key driver of bank bad debts. With unprecedented borrowing by individuals and a cooling property market, banks might soon see households taking over from businesses as the main driver of bad debts. The level of household debt in Australia is now the highest among developed countries, and has risen to a new peak since the global financial crisis in 2008.
According to an analysis by Barclays, household debt relative to gross domestic product had hiked to a record-setting 134 per cent, the highest of 36 developed and emerging countries.
Regulators are warning of risks in the housing market. The Australian Prudential Regulation Authority (APRA) claims risks to Australia’s financial stability continue to revolve around the property market. According to CoreLogic, the past three years saw home prices across Australia’s capital cities hiking 28 per cent, but price growth and auction clearance rates have since slowed. According to Macquarie Group, home prices are expected to dip 7.5 per cent by the end of 2017, due to an increase in supply and weak population growth.