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High end home prices keep rising in mainland China despite cooling measures
Luxury home prices in major mainland cities in China continued to rise in the second quarter of 2016 despite government cooling measures, according to the latest real estate market report. In Shanghai, where non-residents are restricted from buying homes, sales decreased 20% quarter on quarter but as a key safe haven asset class, luxury homes were still sought after, says the report from international real estate firm Knight Frank. In Beijing some 257 new luxury homes were sold, up 38% quarter on quarter, driven by booming supply and demand in the traditional peak season. In Guangzhou, where market recovery became slower, sales fell over 20% and inventory level fell 11.7% due to a lack of new supply. The report says that the Hong Kong market remained polarised, with super luxury homes popular with billionaires, but other homes recording price drops because of an anticipated increase in supply and a potential interest rate rise. In Taipei, the new administration did not emphasize curbing measures, which encouraged developers to launch new projects. Enquiry levels for luxury homes surged, but buyers were deterred by the high property tax, which dragged down sales to only 30% of the volume a year ago. Overall prices and rents remained stable amid the low interest rate environment. ‘In the short term, curbing measures are expected to remain in first tier mainland cities but luxury home prices are set to rise, propelled by high premiums in recent residential land sales,’ the report explains. It predicts that luxury home prices could fall 5% to 10% in Hong Kong and stay steady in Taipei for the rest of the year. Meanwhile, in the commercial sector mainland Grade-A office markets remained active. In Shanghai, rents rose and the vacancy rate fell, driven by strong demand, with core business districts seeing satisfactory leasing performance. In Beijing, rents continued to climb, although the vacancy rate edged up slightly with six new projects completed. Guangzhou was relatively quiet, with minor increases in both rents and prices. The sales market saw transaction volume drop over 40% quarter on quarter and in Hong Kong, leasing activity was slow on Hong Kong Island due to the low availability of space and weaker demand from the mainland, while Kowloon East remained active, boosted by strong relocation demand from tenants on Hong Kong Island. In Taipei, the letting market performed well with a good absorption rate, most notably in Xinyi District. Overall rents and prices remained steady. Looking ahead, a huge amount of new supply is likely to impose upward pressure on vacancy rates in Shanghai, Beijing, Guangzhou and Taipei, the report suggests. But it explains that the shift from Business Tax to Value-added Tax on the mainland is likely to reduce the tax burden and benefit the absorption of office space. Continue reading
Commercial property more likely to be affected by Brexit than residential
Volatile markets since the UK voted to leave the European Union are clouding prospects for the nation’s real estate sector with commercial sectors most likely to be affected, according to a new analysis. Commercial real estate companies, especially those most exposed to London's financial districts, could be most affected by falling valuations and rents, followed by home builders in the higher end segment, says the report from S&P Global Ratings. ‘We anticipate the drop in valuation will be on average less dramatic for residential real estate assets than for the commercial sector, although it will vary between segments and geographies, the report says. ‘High end and luxury apartments in central London were already experiencing some negative trends in the past few months. We would expect this situation to continue given that this segment relies more heavily on foreign investors, which we expect may be even more hesitant buyers now, despite the fall in sterling,’ it points out. ‘On the other hand, we believe that value fluctuation in the mid-range and affordable segments will likely be more limited, especially given the structural undersupply of housing in the UK and the expected lower for longer interest rate environment. Any long term impact on migration flux as a result of a Brexit may nonetheless have some negative consequences on households' growth and ultimately on residential real estate overall. However, we view this risk as more remote for now,’ it explains. Home builders, the report says, could be more heavily affected by Brexit fallout than residential real estate investment companies. This is especially if demand for new homes starts falling should purchase decisions be delayed in the context of uncertainties created by the Brexit vote. ‘We understand that home builders are monitoring closely their weekly sales rates, footfall to showrooms, and mortgage approval rates, as key indicators of operating performance. These indicators seem to have remained relatively healthy so far, in particular in the affordable segment, and mortgage availability continues to be robust as opposed to the previous downturn in 2008/2009, the report says. ‘However, some deterioration cannot be ruled out, especially because the sector is strongly correlated to GDP growth, unemployment rates, and consumer confidence, which are all expected to be negatively affected in the coming months and years,’ it adds. The report also points out that home builders already observed some declines in sales rates in the second quarter of 2016, although this seems to have been related more to the change in stamp duty than concerns over Brexit, adding that a potential decline in house prices may also stretch margins for home builders. ‘While a drop in valuation of UK commercial assets of 10% to 20% or more would be detrimental to property companies, the robust fundamentals of the business model of real estate investment companies should limit any significant turbulence in operating performance, in our view, at least in the short to medium term,’ it points out. The climate could result in discounts being offered… Continue reading
UK house prices down by 1% month on month, too early to judge Brexit effect
House prices in the UK fell by 1% between June and July, taking the average price to £214,678, according to the latest index which also shows that overall growth is slowing. In the three months to July prices were 1.6% higher than in the preceding three months, above June’s 1.1% increase and similar to the rates recorded in April and May of 1.5% but it significantly lower than in February and March. The data from leading lender the Halifax, also shows that prices in the three months to July were 8.4% higher than in the same three months a year earlier, unchanged from June but the lowest since July 2015 when it was 7.8%. The month on month decline largely offset the 1.2% increase in June, but Martin Ellis, Halifax housing economist pointed out that month on month changes can be erratic and monthly falls often occur within an upward trend. He explained that it was the third monthly fall so far this year and was smaller than February’s decline of 1.5% and the quarter on quarter change is a more reliable indicator of the underlying trend. The number of first time buyers increased by an estimated 10% in the first six months of 2016 compared with the same period in 2015, according to the Halifax First Time Buyer Review. There were an estimated 154,200 first time buyers in the first half of 2016 compared with 140,500 in the same period last year. This was more than double the market low in the first half of 2009 when it was 72,700. Nonetheless, the number of first time buyers in the first half of 2016 was nearly a fifth lower than in 2006. ‘There are signs that house price growth is slowing with a deceleration in both the annual and quarterly rates of increase in the past few months. Nonetheless, the current rates remain robust. Overall, it remains too early to determine if there has been any impact on the housing market as a result of June’s EU referendum result,’ Ellis added. Alex Gosling, chief executive officer of online estate agents HouseSimple, also believes that too much should not be taken from the monthly figure. ‘There are so many factors at play right now, we're probably going to have to wait until September to get a clearer picture of how the housing market is coping with this headwind of political and economic uncertainty,’ he said. ‘Property transaction levels traditionally drop off during the summer months,’; he explained, adding that there have been a number of other factors impacting the housing market in recent months such as April stamp duty changes, the EU Referendum, and the cut in interest rates. ‘The Bank of England's decision to cut interest rates yesterday should definitely provide a stabilising effect on the economy. Whether that will be enough to inject the necessary confidence into the property market only time will tell. It will certainly provide a level of confidence… Continue reading
