In 4Q 2015, private home prices dipped for the ninth consecutive quarter, the longest losing streak in 17 years. Mr Eugene Lim, Key Executive officer at property agency ERA, expects the downward trend of prices to continue in 2016 with the normalisation of interest rates and a weaker Singapore economy.
According to the Urban Redevelopment Authority’s flash estimates, private residential property prices dipped 3.7 per cent in 2015, following a four per cent slide in 2014. In the Core Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR), prices were down by 2.6 per cent, 3.9 per cent and 3.7 per cent respectively in 2015. Prices of landed property fell 4.4 per cent in 2015.
First rise in HDB resale prices in 2.5 years
Q4 2015 saw Housing and Development Board (HDB) resale flats prices rise for the first time in 2.5 years, according to flash estimates released by the HDB. The Resale Price Index increased 0.2 per cent in that quarter to 134.9. Prior to Q4 2015, resale prices had dipped for nine consecutive quarters. For the year 2015, HDB resale prices dipped 1.5 per cent; a smaller contraction compared to the 6.2 per cent dip in 2014. Analysts say the slowing decline of resale flat prices over the past few quarters are indicative of prices bottoming out.
However, prices of resale flats will likely continue to fall in 2016 due to weaker demand and greater supply, with a steady supply of Build-to-Order flats entering the market next year and an increase in resale flat supplies due to approximately 18,000 to 19,000 HDB flats completing their minimum occupation period.
Prices of prime residential expected to fall till end of 2016
According to a report by Knight Frank, price drops in Singapore’s prime residential market is expected to continue till the end of 2016 due to the government’s assertion that property market cooling measures are not expected to be eased soon.
However, Knight Frank believes that the price drops in luxury properties can be seen as investment opportunities, with 2016 expected to see sales volume increasing as a result of shrinking inventory of luxury homes.
According to Colliers Global Investment Outlook, investor sentiment regarding real estate will be positive in 2016. In the first nine months of 2015, direct property investment worldwide amounted $625 billion, and Real Capital Analytics expects the figure to be even greater in 2016.
This is amidst economic uncertainty globally such as China’s economic woes, rising interest rates in the United States, Britain’s referendum on exiting the European Union, low oil prices and heightening tensions in the Middle East.
The survey by Colliers International showed that 52 percent of the 600 respondents said they would increase their allocation for real estate investments in 2016, while only eleven per cent will decrease. Main targets for direct cross-border real estate acquisitions in the next twelve months include London, Paris, New York, San Francisco, Tokyo and Sydney.
Despite a risky world economic environment, real estate investors are taking on greater loans to fund their purchases, and real estate remains in demand in most world class cities.
Overseas investors fuel London real estate boom, government to increase housing supply
London’s real estate boom is currently fuelled by overseas investors, with international investors entering all levels of London’s property market. According to research conducted by Knight Frank, between July 2014 and July 2015, 63 per cent of buyers of property worth more than USD 15 million were non-British.
A key factor for London being a popular destination for property investment buyers – Russian and Middle Eastern in particular – is safety. London is perceived as a financial safe haven, especially after the Conservative election win in 2015 which reduced the likelihood of a Labour-implemented “mansion tax”.
However, the housing boom has also led to home prices skyrocketing and pricing locals out. The average price of a typical home in the capital is twice the national average at USD681,500.
To ensure sufficient supply of housing for first time home buyers, the UK government announced that it is directly commissioning the building of up to 13,000 new homes, with 200,000 starter homes for first-time buyers built by 2020, with at least a 20 per cent price discount on properties valued up to £250,000 outside London or £450,000 in the capital.
Prime UK property developers will have a tough year in 2016. Bob Weston, Chairman and Chief Executive of Weston Homes plc says higher stamp duty, low oil prices, a strong pound and the new stamp duty rates for second homes to be implemented in April are factors dampening property investment in the UK.
Hong Kong’s property market might be headed for a slump in 2016
Both Singapore and Hong Kong adopted similar policies of aggressively taxing foreign home buyers and implementing stringent mortgage loans to contain investor speculation in their property markets. However, Hong Kong did not see the success that Singapore had in controlling prices, and Hong Kong’s property prices surged.
As Hong Kong pegs its currency to the American dollar, rising US interest rates has led to Hong Kong experiencing tighter financial conditions and the possibility of sudden dips in home prices.
Hong Kong’s property market has been sluggish over the past few months, and analysts are speculating that the property market might be headed for a slump after a twelve year rally in prices. According to property adviser Colliers International Group Inc., Hong Kong might see property prices dip 15 per cent in 2016. With 70,000 to 80,000 new units to be injected into the market in the next three to four years, developers who have so far been resisting price cuts might have to do so next year.
According to data provided by CoreLogic Inc, home values in Sydney dipped 1.2 per cent in December after declining 1.4 per cent in November; the first time values have dipped two months in a row since May 2013. Compared to other Australian capital cities, which saw a total average decrease of 1.4 per cent, Sydney had the weakest performance with home prices falling 2.3 per cent in the entire fourth quarter of 2015. This was also the worst quarter in four years.
Sydney’s falling prices might be due to higher mortgage rates and dented affordability stemming from a regulatory crackdown has led to home prices.
Over the past seven years, home prices in Australia’s capital cities leapt approximately 55 per cent, as a result of mortgage rates dropping to the lowest in five decades, and foreigners – including Chinese nationals – increasing their purchase of dwellings in Australia.
Luxury home prices in the US fell for the first time in 3Q 2015, according to a report by real estate brokerage Redfin. The 2.2 percent year-on-year drop for luxury homes – defined as the top five per cent of homes in the US by price – was the first since 2012. Analysts explained that the drop might be due to higher supply of luxury homes and weakening interest by foreign buyers due to volatility in global markets. Luxury units in Arizona and Florida saw the biggest losses of 15 per cent year-on-year, while some areas in San Francisco saw prices increase by eight to nine per cent.
In Manhattan, overall median home prices actually increased by 17 percent in the fourth quarter of 2015. A report by appraiser Miller Samuel Inc and brokerage Douglas Elliman Real Estate showed that this was the highest in 27 years. The president of Miller Samuel, Jonathan Miller, attributed this increase to a handful of $100 million transactions that have been completed at the end of last year, but were agreed on as long ago as 2013 when developers were targeting cash-rich investors.
On the other hand, global property analytics firm Corelogic HPI expects that overall US single family home prices will rise about five to six percent in 2016, after a 6.3 percent year-on-year increase in November 2015. Anand Nallathambi, Corelogic’s president and chief executive officer, said that strong demand and tight supply contributed to this increase, but affordability is becoming a concern as incomes are not matching prices.
Foreign investors looking to increase US property investments in 2016
According to a survey by the Association of Foreign Investors in Real Estate (AFIRE), foreign investors are looking to increase or maintain their property holdings or reinvest their sales proceeds back into the market this year, with none expecting a major decrease in investment. According to Jim Fetgatter, Chief Executive of AFIRE, international investors were looking at the US as it was “the safest place for them to go” amidst economic uncertainty in China, Brazil and Europe.