Week in Review – 8 April 2016

iProperty International, iProperty Group’s international property platform, has launched a Southeast Asia marketing campaign for The Towers at Elizabeth Quay. iProperty will provide Southeast Asia property buyers direct access to the new Perth-based luxury development. The Towers has seen 60 per cent of its units snapped up since its January launch. iProperty International has also been enhanced with new property listings in Japan and Thailand, as well as an expanded number of 35,000 Australian property listings.

iProperty has also launched its first white paper focusing on Australia’s property market to provide investors with the necessary information when investing in Australia. The white paper provides insights into current trends in Australia’s property market with a shortlist of Australia’s property hotspots, why these hotspots make good investment destinations, and analysis of rental yields for property in these regions. The iProperty white paper also includes legislative changes affecting foreign property investors looking to invest in Australia’s property market and is available at insights.iproperty.com.

Q1 2016 saw a continued fall in property prices from Q4 2015 as private residential property prices dipped 0.7 per cent while HDB resale prices fell by 0.1 per cent. Flash estimates by the Urban Redevelopment Authority (URA) showed that prices of private property registered a greater fall compared to Q4 2015 when prices fell by 0.5 per cent from the previous quarter. Q1 2016 was the tenth consecutive quarter of decline in private residential property prices. Despite the longest stretch of losses for close to two decades, prices have merely come down 9.1 per cent from the Q3 2013 peak, after prices hiked 60 per cent between 2009 and 2013 as the market rebounded from the global financial crisis.

Data provided by URA showed non-landed private homes in the Outside Central Region (OCR) falling by 0.9 per cent in Q1 2016 after prices remained stagnant in Q4 2015 – the highest among different regions. In the Rest of the Central Region (RCR), prices dipped 0.4 per cent with pace of price falls remaining constant. In the Core Central Region (CCR), prices increased by 0.4 per cent.

Despite prices falling for the tenth straight quarter, the government is still reluctant to relax the property cooling measures in place, fearing that the market will overheat once again.

UBS analyst Wen-Ching Lee believes Singapore’s real estate market will face issues stemming from rising financing costs as well as the potential rise of capitalisation rates in the following years. Coupled with rents under pressure due to slowing demand and increasing supply, the real estate market is expected to deteriorate with both residential and commercial property prices set to fall for the next two years. Lee believes that even if project launches are delayed, developers will not be able to avoid the continued decline in asset prices. Even as developers delay projects, there is an incoming supply of new units between 2016 and 2018 that accounts for approximately nine per cent of existing stock. This is expected to put even greater pressure on vacancies and rents.

A report by Maybank Kim Eng asserted that low interest rates should not support property prices, meaning that a review of cooling measures to act as a near-term catalyst is unlikely to happen. According to the report, the property industry continues to see material discounts to physical assets, and developers will probably keep chasing for new deals to unlock underlying property values.

Property cooling measures were left unchanged in the recent Budget announcement despite the successful cooling down of the market. However, analysts who spoke to Singapore Business Review were not surprised by the government’s decision to leave the cooling measures in place. Jones Lang LaSalle (JLL) analyst, Tay Huey Ying, opined that the extent of measures targeted at helping companies and individuals tide though the economic slowdown might encourage demand for commercial, industrial, and retail real estate. On the other hand, Research Director of Cushman & Wakefield, Christine Li, shared that while relaxing cooling measures will help a selected audience – property developers, Singaporeans who can afford their second and subsequent property, permanent residents, and foreigners – this will not benefit the larger population in keeping prices affordable.

With more foreign students selecting Australia as a top destination to receive education, Goldman Sachs sees the potential and opportunity in student housing in the country. As such, Goldman Sachs has partnered investor Blue Sky, collectively coming up with A$1 billion (S$1.02 billion) to invest in the student housing market sector. Between 2014 and 2015, the number of students who have to find housing in Australia hiked ten per cent to approximately 500,000, with Chinese and Indian students accounting for the bulk. However, according to University Colleges Australia, which conducted a national census on university student accommodation, there were less than 80,000 student accommodation beds as of November 2014. The growth in number of student beds between 1999 and 2014 was at a slow rate of 4.3 per cent. Growth is expected to accelerate, however, to 4.7 per cent annually by 2018. Savills told Reuters that the shortage of student beds shows a huge underlying opportunity in the student accommodation sector.

According to the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI), Britain saw its growth in construction of new homes fall to a three year low in March, with overall growth in the building trade being the weakest in approximately a year. The PMI stood at 54.2 in March, constant with the ten month low recorded in February and slightly above the forecast of 54.0 provided by economists polled by Reuters. Senior economist at Markit, Tim Moore, said that the greatest loss of momentum in Q1 2016 came from residential building – a surprise considering the strong performance over the past three years and strong market foundation. Despite the construction industry slowing, Qatari Diar Real Estate Investment will partner with British developer Delancey Real Estate Asset Management and APG Asset Management NV – a Dutch pension fund – to create a home rental business in London, expected to be worth S$2.7 billion. A Savills survey in 2015 noted that investor interest in the British multifamily sector is high, with £30 billion set aside for investment in the sector.

More are renting homes in the United States rather than buying due to current frothy prices resulting in large down payments and huge monthly payments for home purchase. According to the Joint Center for Housing Studies of Harvard University, the number of renters is at an all-time high since the mid-1960s, with 37 per cent of all households across the US renting.

According to the National Association of Realtors, foreign investments into US property might also have decreased between April 2015 and March 2016 from the $104 billion spent in the same period the year before. The decrease is likely a result of the US dollar strengthening since 2015 and capital values increasing. According to the Economists’ Outlook, home prices saw a strong eight per cent year-on-year increase in January 2016, bringing the median price of existing homes to $213,800. In terms of currency, the US dollar strengthened against the Brazilian real, Mexican peso, and Canadian dollar by 54 per cent, 23 per cent, and 15 per cent respectively. The strengthening of both the currency and spike in prices of homes make US homes increasingly unaffordable for foreign buyers, resulting in lesser interest.

According to Savills’ Q1 2016 Hanoi Quarterly brief, a high sales volume of apartments in the city continued in the quarter with foreign direct investment in serviced apartments seeing a 15.4 per cent year-on-year increase. In the first quarter of 2016, total primary stocks increased one per cent quarter-on-quarter and 26 per cent year-on-year to 16,270 units. The Foreign Investment Agency estimated disbursed foreign direct investment to be US$1.5 billion in January and February 2016. Asian tenants’ demand continued to be significant as a result of foreign direct investment from their countries. In 2016, the market will see one project launch with approximately 100 units. However, starting from 2017, 15 projects are expected to enter the market.

Supply of villa and town houses also saw year-on-year increases of 5.6 per cent, with sales being dominated by townhouses at 76 per cent.