Week in Review - 5 August 2016

Local Property News

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According to June flash estimates of the National University of Singapore's (NUS) Singapore Residential Price Index(SRPI), non-landed residential units in the central region showed a stronger performance in price growth compared to units in the non-central region. Month-on-month, the SRPI index value of units in the central region grew 0.7 per cent. Comparatively, price growth for non-landed residential units was weaker at 0.4 per cent month-on-month.

The Housing and Development Board (HDB) has announced that Blocks 513 to 520 on West Coast Road have been selected for the Selective En bloc Redevelopment Scheme (SERS). Residents of the 994 affected units will be offered the choice of replacement flats constructed at Clementi Avenue 1 and West Coast Link sites, with options including two-room Flexi to Three-Generation (3Gen) flats. These units are expected to be completed by Q3 2022. According to HDB, replacement flats for residents affected by SERS are located in close proximity of amenities including Clementi MRT station and Bus Interchange, with facilities such as Clementi Mall, Clementi market-cum-food centre, as well as West Coast Market Square among other eateries and neighbourhood shops.

Residents who decide not to take up the replacement flats have the option of selling their current flat in the open market. Resale or transfer applications have to be submitted to HDB between 2^nd September 2016 and 31^st July 2017.

A BMI Research report shows that sale and rental prices for Singapore residential properties will continue to stay subdued in the upcoming quarters. Rents have dropped year-on-year and quarter-on-quarter even in the non-central regions. A lower demand for rentals is expected as the number of expat professionals coming to work in Singapore slows down. On top of this, BMI Research noted a higher influx of private properties to be completed this year compared to 2015 that will likely keep prices in check.

Global Property News

CoreLogic reported a seventh consecutive month of increase in Sydney and Melbourne home prices in July 2016, despite year-on-year price growth slowing nationwide. The index of home prices in Australia's capital cities gained 0.8 per cent this July, a stronger growth compared to a 0.5 per cent increase in June.

Despite being concerned about an overheating residential property market, the Reserve Bank of Australia (RBA) reduced interest rates to 1.75 per cent in May and further slashed interest rates earlier this week to 1.5 per cent, a record-breaking low. Interest rates are reduced for the second time this year as the central bank tries to control deflation and an overly-strong currency.

According to CBRE's Leading Global Capital in a Time of Uncertainty report, markets with an abundance of technology talent are drawing high-tech companies to relocate there. In response, commercial property is expanding quickly in such markets, namely San Francisco, Baltimore, Detroit, and Phoenix to meet the growing demand.  The share of major leasing activity of high-tech companies is the most among all industries nationwide, increasing from 11 per cent in 2011 to 18 per cent last year. CBRE notes that investors should look out for cities like Pittsburgh and Pennsylvania, where universities are attracting tech talent, making commercial properties near to educational institutions good investment options. CBRE director of research and analysis Mr Colin Yasukochi said, "Although a relatively small portion of the economy, tech-talent employers spurred economic activity and added more than one million tech jobs during the past five years...As a result, tech talent growth has recently been the top driver of office leasing activity in the US and high-tech companies are now one of the main drivers of commercial real estate activity."

In contrast to the commercial property sector, there are warnings regarding the recovery of the country's residential property market. Mr Lawrence Yun, Chief Economist of the National Association of Realtors (NAR), is concerned regarding the issue of affordability leading to a possible slowdown in home sales. As a result of US housing market recovery, home prices have hiked, with the median national price at US$247,700 in June, the highest since NAR started to track prices in 1948. Rising affordability issues are compounded by a housing supply shortage, and home building has not kept pace with rising demand.

With uncertainty following the UK's referendum on its membership in the European Union (EU), mortgage approvals in the country were the lowest in June for over a year. According to the Bank of England (BOE), home loans approved by banks and mutually-owned lenders dropped to 64,766 approvals. Month-on-month, approvals in June were three per cent lower.

Mortgage demand has been weak since an April tax hike on investment properties and was further affected by the referendum. Prior to the vote, potential buyers were cautious about property purchases. Since the referendum, many buyers have retracted from their deals or are renegotiating prices, with concerns that property values might fall. The UK's decision to leave the EU has struck consumer confidence, with Capital Economics Ltd, one of the leading independent economic research companies in the world, forecasting a sharp reduction in residential property transactions.

According to a study by Resolution Foundation, an award-winning think tank that works to improve the standard of living for low-to-middle income groups in Britain, rising costs have led to home ownership in England falling to a 30-year low. People are priced out of housing markets and forced to rent in the private sector, which can cost more than a mortgage. Home ownership in the country has thus reduced to 63.8 per cent in February, the lowest since 1986, far below the 2003 peak of 70.8 per cent. In 1986, an average first-time buyer could purchase a new home at less than £30,000, yet it costs £150,000 currently while salaries have not risen in step with housing prices. Home ownership in Greater Manchester slid the most by 14.5 per cent from the 2003 peak of 72.4 per cent to reach 57.9 per cent this June. Greater London saw home ownership drop 13.5 per cent to 57.8 per cent.

Forest City, a US$42 billion, 1,370-hectare "eco-city" project spanning four man-made islands, has raised ecology concerns over the required land reclamation that expects approximately 162 million cubic metres of sand to be dumped in the sea. The project, expected to be completed in 2035, is being watched by environmentalists including Singapore's environment ministry, which has requested further clarifications on an impact assessment report that Malaysia provided. The multi-billion-dollar project is one hour away from Singapore within the Malaysian side of the Johor Strait. It is developed by Country Garden, a major real estate player listed in Hong Kong, together with a firm owned in part by Sultan Ibrahim Iskandar, an influential Sultan from Johor. Mr Mohamad Othman Yusof, Executive Director at Country Garden Pacific view, told AFP, "No damage, no pollution has been exported to Singapore...We don't want to create any problems with anybody and we're going to abide by the rules and regulations." He added that the developers were monitoring water quality closely after Malaysian fishermen lodged complaints and said that the company was "very confident about the success of the islands".

According to Country Garden, up to 500 units have been sold during the pre-selling phase. A two-bedroom unit at the development costs approximately US$200,000, while a seaside villa costs approximately US$1.6 million. For the price of a mass-market condominium in Singapore of approximately US$740,000, a four-room seaside villa at Forest City can be purchased. This includes a function hall, large garden, and two parking spaces. The project will feature high-rise developments and waterfront villas, with approximately 700,000 residential units to be sold. Other amenities include shopping malls, international schools, medical institutions, an immigration centre, and more.

Vancouver imposes foreign property investor levy despite seemingly low foreign transactions

An additional property transfer tax has been imposed on foreign property investors in Vancouver from 2^nd August 2016. It aims to curb foreign investor activity, which is said to be causing prices in the city to increase more than 20 per cent a year. Property buyers who are not Canadian citizens or permanent residents (PRs) will face an additional 15 per cent transfer tax on their residential property transactions in Vancouver.

Figures released by the British Colombia government in Canada, however, show that of the 10,148 residential property transactions made between 10-29 June 2016, merely 3.3 per cent were made by foreign home buyers. OPP.Today reported that commentators believe more data is required before a trend can be established. Chinese and Korean buyers form the bulk of Asian property investors in Vancouver, while South Asian investors from India, Iran, and Middle East are also driving up demand. Meanwhile, more Americans have been purchasing residential property in Vancouver due to the strong performance of the Canadian dollar against the US dollar.