Why property cooling measures are here to stay

ABSD, SSD, TDSR, QC – These abbreviations related to property cooling measures implemented over the course of 5 years have taken root in the local real estate and construction industry and despite a much quieter market, may not go away anytime soon. And with good reason.

Aeon MelbourneThe demand for properties in other major Asia-pacific countries and cities such as Hong Kong, China, Australia and Japan have not seem to wane, reflected by soaring home prices in Hong Kong, Sydney, Melbourne and various top-tier cities in China. And this is despite their governments placing more restrictive regulations in place in efforts to curb investment outflow and property speculation. But perhaps it could be the case of too-little-too-late. And it also goes to show that investors are still looking for markets to hedge their funds and the pool of willing China investors looking to take capital out of their country agains a depreciating yuan.

CasaAerataIn Singapore, despite a gradually decline in home prices, the market has remained resilient and a untimely lifting of property curbs may result in a quick and unrecoverable increase in property speculation. In fact, despite the series of property curbs instrumented since 2013, the property cycle seems to already be reaching the bottom, which could only mean a turnaround possibly within the year. Last year, resale volume rose 28 per cent and total sales increased by 16 per cent from 2015, indicative of a recovering, or at least stabilising, market.

Rougher terrain for local leasing market

Property owners with rental units at hand have been finding it increasingly difficult to find tenants.

MartinPlaceResidencesForeigners make up approximately 60 per cent of the rental demand in Singapore, and as the financial and oil and gas sectors take a hit, demand has declined with the foreign workforce diminishing due to companies moving out of the country or simply because housing budgets have been cut as the sluggish global economic drags out. As of mid-2016, vacancy rates stand at 8.9 per cent and there were about 30,310 units vacant. The sudden influx of completed new homes hitting the market this year could not have helped things as well. This year, the number of completed properties entering the market outgrew the influx of a foreign workforce. Immigration and labour policies have changed since the last general election.

Rental rates in the suburbs fell the hardest at 1.2 per cent, followed by 0.6 per cent in the city fringes. Rents of core central region properties however increase by 0.1 per cent.

cavenaghlodge2017 will see the completion of even more residential developments and analysts are expecting rental demand to fall even further, particularly in the suburbs. Rents have dipped by up to 8.8 per cent in the suburbs and 4.5 per cent in the central districts. Some landlords have even give discounts of up to 30 per cent, just to secure a tenant. Others have found themselves going months without finding a suitable taker on the unit. Smaller one- and two-bedroom apartment units are however still faring well, especially those in the Central Business District (CBD), Marina Bay, Orchard Road, and River Valley areas.

 

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.

 

Ready to invest in properties overseas?

The attraction of investing in a plum overseas property may be strong but while the yields may be high, so too could be the risks.

Prudent research and risk-calculation prior to taking the plunge is of course essential. And some of the very real and future-determining factors to take into consideration are:

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1. Foreign ownership regulations

It almost goes without saying that this would be what any discerning buyer first finds out – what governs their purchase and whether they are eligible. Newer markets, in particular South-east Asian ones such as Vietnam, Cambodia, Myanmar and Laos, could have more relaxed rules as their immediate interest lie in attracting investments while markets with a longer history of foreign investment such as Australia and Thailand may have more rules in place in reaction to previous market movements. In some markets such as Australia and Malaysia, there are also restrictions on the resale of foreign-owned properties, and for buyers who do not have strong holding powers, having to hold on to properties in a economic downturn with only a niche target audience could be stressful in all senses of the word.

2. Currency exchange

Though currency fluctuations are inevitable, property analysts encourage buyers to seriously consider the market or country’s political and economic states. Markets where the local currency have been fairly stable for a prolonger period of time are generally lower-risk options, though even then, it would be wise to engage the services of a lawyer or accountant to help in long-term financial planning.

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3. Rental potential

The location and type of property, the track record of the property developer and the rental demand for the property are all instrumental to the make or break of an investment decision. The property size should also be taken into consideration as larger albeit rarer properties may not be as quick to find a tenant as say, a smaller-sized unit at a more palatable quantum price. Industry experts also advice investors to first have a target audience in mind as expatriates may come from different industries and have differing housing budgets.

4. Payment schedules and options 

Singapore’s property market may veer to the stricter side in terms of payment schedules as they work on a progressive payment scheme. Many overseas markets however offer a deferred payment scheme, for example where a buyer puts down a 10% down-payment deposit and only pay the rest of the 90% upon completion of the projects. That could be a plus for some buyers, but it would mean a change in financial plans.  With overseas property investments, there are also more lending options, some of which could offer higher levels of flexibility such as dual currency switching and mortgages with the possibility of off-setting interest.

 

 

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.

 

 

Indonesia opens up property market to foreign investors  

Buying an apartment in Indonesia may soon become easier. The Indonesian government is working towards changing the law in favor of foreign investors in a bid to grow the economy. The new regulations may be in place before the end of the year. Previously, the Agrarian law instated in 1960 stipulated that foreigners are not allowed to own properties in Indonesia.

Aeropolis Indonesia propertyThe new emergency law, named perppu, will take effect next month and foreigners will then be able to purchase apartment units though landed properties are still restricted. Property agents have already reported more enquiries for properties in Jakarta, mostly for properties in the suburbs priced around 2 billion rupiahs. Apartment prices in Indonesia are considerably lower than that in Singapore and so is the cost of living, thus this new law may indeed be the impetus behind a economic change in Indonesia.

Although job creation and economy growth are the motivation behind this move, some analysts say that this may change the landscape of property ownership for Indonesian citizens, as property prices may rise to unaffordable levels. The new law will no doubt come with caveats, for example price and property type restrictions, but the average Indonesian may still see the median prices rise about 20%.

Spain – Holiday spot or potential gold mine? 

How does an apartment or a house in the suburbs of Barcelona or Madrid sound? More foreign investors are going into the Spanish property market, despite the political uncertainty without having had a new government for 7 months now. There has been a recent increase in building permits which could be an indicator of a property boom in the near future.

1089_XA77-3924_3_2016071905520431250Though there was a peak of real estate activity in 2007, most of the properties were in remote areas or urban fringes which did not garner as much interest as expected. That left almost half a million new homes empty . This time round, the popular properties are luxury apartments  and middle-class homes in the middle ain cities and regions with a strong industrial influence.

Many leading real estate developers have been buying up land banks in regions where demand for property is high, such as the Basque country, Madrid and Barcelona. Spain is 4th on a list, compiled by PWC, of European cities with property markets offering the best prospects.

1097_0_foto_20160719174440302_945856908925211Prices of properties go from as high as 8 million euros on an upmarket apartment in Madrid’s shopping Boulevard Serrano, or a 10,000 euros per square metre unit with swimming pool and spa which despite its price tag, is only a mere 10% of a similar unit in London. The immense potential for growth is apparent to investors, and despite the Brexit vote dragging down the pound, the major cities in Spain will still have their clout with savvy investors.

Property investment and London EPL football clubs

What’s the link you say? Well, apparently property buyers have been snapping up properties near their favourite European Premier League (EPL) clubs. That’s how fervent the football craze can get. But all the more cheer for landlords, property owners and those looking to invest in and benefit from a juicy piece of property.

LondonFLatThough more evident in the outlying boroughs rather than central London where property prices are high all around, even in the prime Central London areas, prices of homes near EPL clubs have risen 1 per cent. Recent studies have found that home prices around 20 of the more popular EPL clubs have grown considerably within a year. Even if your football team does not win, the yields from rents and value appreciation would be a good consolation, would it not?

For example in Tottenham, home of the Tottenham Hotspur team, values of properties around the White Hart Lane stadium have risen 18.4 per cent within 12 months ending 31st of December 2015. In East London, where West Ham United is based, prices of homes in the borough have risen 13.2 per cent. And in Watford and in Croydon, prices were up 10.6 and 9.2 per cent respectively. In Manchester, property prices rose 9.2 per cent. Not a bad way to map out investment monies and perhaps less risky than making bets on your favourite team.

ManchesterFLat

Though unlikely that property prices will fluctuate as much as the placement of the EPL teams on the leaderboard, it would be wise perhaps to keep an eye on how these numbers relate to one another. Who is the ultimate winner?