China’s property explosion slows only slightly

There has been fear of a bubble growing in China’s property market but as property prices fell  in some of China’s top and second-tier cities this month, the fears may be slightly allayed as it seems to indicate that the curbs which authorities have put in place are starting to work.

Property analysts have however reported a change in focus for some mainland buyers to Hong Kong as skyrocketing property prices and cooling measures put some off.

HongKong The AltitudeThe property market in China is one of the country’s main source of revenue growth, and while the authorities may want to prevent a bubble from bursting, they are also put to task to keep the economy alive. China’s economic growth of 6.7 per cent in Q3 was largely dependent on its real estate industry. Recent curbs include larger down payments and restrictions on multiple property ownerships. But the low interest rates offered by China banks have kept the buyers coming. Though the rates have remained unchanged since October 2015, it has been cut 6 times prior.

While new home prices in Beijing fell 3.7 per cent and 2.5 per cent in Shanghai, some may consider this a market cooling. But the average new home prices across 70 cities have shown a record surge last month, the highest in 7 years, with a 1.8 per cent rise from August.

 

2016’s demand for properties level with last year’s

Though it may seem like the property market took a turn for the worse this year, figures have shown that the level of demand has remained similar to last year’s.

peak-cairnhillProperty prices have fallen 10.8 per cent since the 2013 peak and perhaps it is precisely this decline of home prices that have kept buyers coming to the table, more so this year than the previous few which have been dull partly due to the property cooling measures implemented since 2013. Some property agents have in fact reported up to a 50 per cent increase in sealed deals this year, indicative of increased buyer’s interest and number of project launches.

The market inertia in terms of the property cooling measures and interest rates may also have been push factors in enticing buyers back into the market. Resale property sales have been strong with 5,587 transactions closed in the first 3 quarters of this year, up 18 per cent from 2015. Developers have also been pricing new units more competitively this year, giving the resale market a run for their money.

the-crestCity fringe and central region resale properties were particularly popular with buyers though some may still be waiting for better deals.  And as property analysts predict a further 3 to 3.5 per cent drop in prices for the rest of the year, the market seems primed for owner-occupiers though those considering investing in properties should wait a little more to get the most out of their buck.

 

Property cooling measures likely to remain

The economic slowdown and diminishing growth rates are causes for concern not only for the Singapore government, but also for consumers and businesses.

National Development Minister Lawrence Wong has recently spoken about the property cooling measures which were implemented in succession over the past three years. He has mentioned that they are likely to remain at this time of uncertainty as a response to “global context and environment”.

Kingsford HIllview PeakProperty prices have fallen 10.8 per cent since Q3 of 2013 and prices fell 1.5 per cent in the third quarter of this year, bringing it to the 12th consecutive quarter of price decline. The real estate industry currently faces stagnation and though interest rates are low, many are looking for higher yields. He has warned against creating an environment rife with property speculation and has said that capital inflow might create a volatile and highly-speculative atmosphere which will result in property market fluctuations.

With the high number of completed units entering the market this year, and with unsold inventory rising, the property cooling measures may be helpful in keeping the delicate market balance. As of Q2 this year, there were 21,500 unsold and uncompleted private homes, the lowest ever recorded, indicating a possible shift of influence from the seller to the buyer. The government has also held back on the launch of land sites earlier this year.

Meyerise2Property analysts are not surprised by the government’s move to keep the property curbs in place, though sudden pace changes and steeper declines might prompt the government to reconsider relaxing the rules sooner.

Forest Woods condominium in Serangoon selling fast

Keeping unit prices at the new Forest Woods condominium below the $1 million mark seems to be a good move by developer, City Developments (CDL).

forestwoodsBuyers are attracted by the prime suburban location and its proximity to the Serangoon MRT station which speaks volumes since location is still a key mitigating factor for most tenants. The fact that the Serangoon MRT station is a major interchange node connecting between different MRT lines, is linked to a bus interchange and also a huge shopping mall, NEX, are all bonuses. And as property prices have been falling for a couple of years now, buyer sentiment is that they will not fall any further, and are taking the opportunity to buy now before interest rates potentially rise in the later part of the year. The $6,000 to $12,000 early bird discount may also have enticed some to seal the deal early.

forestwoods2All the one- and two-bedroom apartments launched at Forest Woods have sold out and the median selling price currently stands at $1,400 psf. The development has a range of units ranging from 506 sq ft one-bedders to 2,185 sq ft penthouses. As of Sunday evening (the project was launched last weekend), almost 65% of the units were already sold. One of the three penthouses available was also sold at $2.85 million. Almost 90 per cent of the buyers were Singaporeans, with the rest being permanent residents or foreigners from China, Indonesia, Malaysia, Taiwan, Vietnam and Switzerland.

China real estate sector – impending bubble by 2018?

Property analysts are wary of a possible property bubble in China, especially after property prices in Shenzhen rose 60 per cent in a year. Despite the government’s attempts at curbing the rapid price rise, consumer fervency has spread from first and second tier cities to third and lesser-known cities and townships. The speed and extent at which China’s real estate sector is growing has economists concerned about an impending bubble and possible market crash. Some analysts have pegged 2018 as the year when things might take the turn for worse.

rafflescityshenzhenPhoto credit: CapitaLand

The fact that China’s banking sector is closely tied to the real estate industry, any shift in the dynamics may rattle the country’s economy. Akin to the property bubble in the United States in 2008, the fact that loans have increased to take up 71 per cent of new lending, up from 24 per cent within 8 months, indicates an increase that could be based on many gaps in the system.

Property prices are climbing so quickly that concerns for a sharp and drastic fall are well-founded. The unsubstantiated value of homes may cause an eventual collapse of the banking system as it becomes riskier for banks to loan such large amounts of money without a certain way of recouping the losses should the market fall. Having assets at hand which have no value or are not in demand will not bode well for individual property owners, funds nor banks.

 

 

Consumer awareness crucial for property industry

The local property industry landscape has been changing quite a bit over the past few years, in particular for the consumer. The authorities have been working on transparency and consumers now have more information at their finger tips, and perhaps even more as net prices of de-licensed projects’ will soon be available as well.

singapore-property-authoritiesCurrently, the Housing Development Board (HDB) and Urban Redevelopment Authority (URA) both provide property statistics and data on their websites. The Singapore Residential Price Index (SRPI) by the National University of Singapore (NUS) Institute of Real Estate also provides month-on-month transaction-based information for private non-landed residential properties.

ardmorethreeThere are however some caveats to take into consideration. URA’s quarterly price index for example, does not include the discounts and incentives which developers sometimes provide. Only the net-price will be recorded, thus consumers will do well to take this into consideration when viewing statistics and median monthly transaction prices. The change will take effect this month, which means the price index may have some downward pressure put on it as current figures may be inflated. De-licensed projects which have obtained their Certificate of Statutory Completion and thus do not come under the Housing Developers Rules, such as OUE Twin Peaks and Ardmore Three, are known to provide incentive schemes to their buyers such as 15% discounts and Additional Buyer’s Stamp Duty (ABSD) rebate.

A recent case of a property agent who handled and misappropriated cash handed to him by his client also brings to light that consumers may not be entirely aware of what they are entitled to or what their agents are allowed and disallowed to do. In brief, it is against the law for property agents to handle any cash on behalf of their clients.

More resale condominiums sold in July and August

Current Q3 property market figures are showing that while sales volume on a year-on-year basis has risen almost 60 per cent, with a 10 per cent rise in June and inching up a further 5.3 per cent in July, home prices have slipped consecutively for 2 months.

183 LonghausA total of 817 units were sold in August while 776 were sold in July. Prices of resale non-landed residential properties have however fallen by 0.8 per cent in August, following a 0.7 per cent fall in July. Most of the price decline came from suburban properties, led by those in the city fringes. The core central region private home prices have continued to rise 0.1 per cent. Overall, buyers are paying an average of $11,000 below market value last month as compared to $10,000 in July.

A few major new launches may have injected some competition into the market, fuelled by the rise in the number of completed private homes. District 20 of Ang Mo Kio, Upper Thomson and Bishan has however had a positive showing of buyers willing to pay up to a median of $18,000 above market value for properties here. The maturity of these estates, coupled with the number of schools and proximity to town may have driven prices up. Surprisingly in district 15 which consists of Katong, Marine Parade, Joo Chiat and Amber Road, buyers are shying away from the high prices properties here used to command.

Belgravia villasThe Hungry Ghost Festival in August may have dulled sales figures slightly, though property analysts expect only marginal adjustments in the months leading to the end of 2016.

Property market on the road to recovery

2016 has proven to be a fairly good year for the property market. Despite slight price fluctuations, prices and sales volume have been stabilising for a few quarters now, giving analysts hope that it’s on a timely road to recovery.

GramercyParkThough the government has yet to indicate an easing of property cooling measures, the market as managed to right itself within the past year or so. Signs of the luxury property market picking up point towards the property market possibly bottoming out soon, which would also mean the market’s on the road to recovery. In Q2, the fall in private residential price index was a mere 0.4 per cent, the smallest thus far. The market has also been correcting itself for 11 consecutive quarters now.

Since the 2013 peak, property prices have fallen 9.4 per cent. With the interest rates currently low and looking like it will remain so for a longer period of time as opposed to extreme fluctuations, borrowing is kept at a healthy level sans the danger of over-borrowing or a property bubble looming. Investors may be refocus their attention on other sectors, keeping the property sector speculation-free.

Leedon Residence on Holland Road.

Leedon Residence on Holland Road.

Global situations such as Brexit or global terrorism may indirectly affect the investment environment and sentiment in the country and region, but Singapore’s real estate market is considered one of the safest and investors are increasingly looking at longer-term capital appreciation.