Week in Review – 30 September 2016

According to the Singapore Residential Price Index (SRPI) by the National University of Singapore, private condominium prices dipped 0.6 per cent in August after 0.3 per cent growth in July. Prices dipped across non-central and small units (up to 506 square feet). Non-central private condominium prices dipped 0.9 per cent, following a 0.1 per cent drop in July, and prices for small units dipped 0.1 per cent following flat price growth in the previous month. Central units saw flat growth after a 0.6 per cent hike in July. The overall price drop in August indicates the market correction for residential property in Singapore is still under way.

The Urban Redevelopment Authority (URA) reported that in H1 2016, 14 Good Class Bungalows (GCBs) amounting to S$298.36m were sold, compared to H2 2015 which saw 18 GCBs transacted for S$377.18m. Real estate consultant CBRE estimates that prices of GCBs slid 2.5% from S$1,352psf at the end of 2015 to the current S$1,318psf. While buyers see current prices as an opportunity to invest in GCBs, owners who bought their GCBs a few years back are tempted to sell to ensure better profits before prices slide further. CBRE estimates that a total 25 to 30 GCBs will be sold for the whole of 2016.

According to Asia-based financial services group Nomura, the recent spike in the purchase of luxury homes by Indonesian buyers is not indicative of an improving market for high-end properties. Indonesians purchased 28 private homes valued at a minimum of S$5 million in H1 2016, compared to eight units in 2015. According to Nomura analyst Sai Min, the luxury property market as a whole has been relatively slow. In H1 2016, the quarterly average of units valued at S$5 million or more was 114 residential units, compared to the quarterly average of 420 units between 2010 and H1 2013.

A S$287.1 million joint bid submitted by Sing Development and Wee Hur Development won the highly competitive tender for a private residential site at Fernvale Road. The 17,196sqm, 99-year leasehold site has a maximum permissible gross floor area of 51,588 sqm and a maximum yield of 600 residential units. The winning bid translates to S$517.03 psf per plot ratio. This land parcel was released from the Confirmed List of H2 2016 Government Land Sales (GLS) programme. Nicholas Mak, Executive Director and Head of Research & Consultancy at SLP International Property Consultants, said that interest from developers might have stemmed from the site’s proximity to Thanggam LRT Station, and the lack of mass-market condominium developments around Seng Kang. Mak added that interest, despite high land prices, is indicative of developers being hungry for land.

While the URA is actively increasing office developments in areas outside of the CBD, including Tampines, Changi and One-North, companies are flocking back to the CBD area due to falling rent prices. According to a Knight Frank report, office rents for grade A and A Plus spaces declined by 11.9% between Q2 2015 to Q2 2016. Ironically, the higher vacancy rate in the CBD area that triggered the dropping of rents was a result of companies relocating to fringe or suburban areas from the CBD. There is now a  flight-to-quality – companies are not only returning to the CBD area, but favouring new A-Plus developments over older (grade A) buildings.

On 28 September 2016, iProperty Group launched a commercial property listing portal, CommercialAsia, to meet interest in commercial property investments in the region. The portal has more than 48,000 commercial property listings in Singapore, Malaysia and Australia, ranging from shophouse offices to prime business district buildings. There are plans to expand the listings to include commercial properties from Hong Kong and Indonesia. The portal caters to both property investors and agents. CommercialAsia helps buyers make informed investment decisions, connect them with relevant local and regional agents, and provides a network for users to connect with other experienced investors.  Mr Sean Tan, Singapore General Manager and Chief Business Development Officer at iProperty Group noted that transactions within Asia accounted for a third of global commercial property investments between Q3 2015 and Q2 2016.

CapitaLand bought a 0.5ha prime site in Ho Chi Minh for S$70.4 million, the company’s third land purchase in Vietnam in the past 14 months. CapitaLand (Vietnam) Holdings, a fully-owned subsidiary of CapitaLand, will have full ownership of the site located in the Cau Kho ward of District 1, Ho Chi Minh City. The residential project, estimated to be worth S$143 million, will consist of two towers – a 17-storey residential tower as well as a 22-storey serviced apartment tower. The project is expected to be launched in Q4 2016 and completed in 2018. The 302-unit development, CapitaLand’s ninth residential project and 19th serviced residence project in the country, will be Vietnam’s first residential development offering concierge services. In H1 2016, CapitaLand sold about 460 residential units worth S$80 million, a 20% year-on-year increase in terms of sales values and volume.

Middle-class Chinese investors are attracted to residential properties in Thailand due to their high rental yields and competitive prices that are up to five times lower than residential properties in first-tier Chinese cities. According to Cobby Leathers, Head of International Business at Sansiri PLC, Chinese middle class investors seeking good rental investments and planning for retirement are particularly interested in first hand units in Thailand. Popular Thai investment destinations for Chinese investors include Bangkok, Pattaya, Chiang Mai, Hua Hin and Phuket.

According to the Global Real Estate Bubble Index by UBS, Vancouver’s property market has the highest risk of a real estate bubble in the world. Residential units in Vancouver’s bubble risk zone have seen prices increase by approximately 50 per cent compared to 2011. The report mentioned that Vancouver’s strong residential property price growth was influenced by high demand for residential properties from foreigners as well as the country’s loose monetary policy.

Recognising the growing instability of Vancouver’s residential market, the British Columbia government implemented a 15 per cent tax on Vancouver homes purchased by foreigners, which took effect on 2 August this year. Government-released data shows that the additional tax succeeded in reducing foreign purchases of residential properties in Vancouver to 1.4 per cent between 2 August and 31 August, compared to 8.4 per cent between 10 June and 1 August.

According to the United States (US) Commerce Department, August sale of new residences slid 7.6 per cent to a seasonally adjusted annual rate of 609,000 units. However August sales were 20 per cent higher year-on-year, the second highest since October 2007. According to David Berson, Chief Economist at Nationwide, the long term view remains positive due to strong new home purchase demand.