American Housing Market Turns Again

It was fun to get swept up in the reports that the US housing market had bottomed, and indeed that is what mounting evidence seemed to suggest. However, the latest round of data has really knocked the stuffing out of any hopes that we are in recovery.

The Commerce Department found that new build home sales fell sharply in June. According to the report signed contracts to buy new homes fell 8.4% from the previous month, according to the U.S. Commerce Department, although they are still up 15% from a year ago. Sales levels are now at their lowest since January.

Sales of existing homes slipped 5.4% in June to an annual rate of 4.37 million units and are down 2.6% in the second quarter (4.537 million units). Combined sales of new and existing homes fell 0.4% to an annualized rate of 4.9 million homes, following three consecutive quarterly gains.

Meanwhile the rental market remained positive, with the residential rental vacancy rate falling to 8.6 per cent from 8.8 per cent in the January-March period, the commerce department said on Friday. The second-quarter reading was the lowest since 2002.

It can still be hoped that the strength in the rental market will lead to recovery in the wider market, especially as builders break more ground on multi-family housing projects. On that note, the home ownership rate edged up to 65.5 per cent in the second quarter, from 65.4 per cent in the previous quarter, the commerce department said.

Of course, the strong rental market continues to be good news for foreign investors in the US property market, and foreign investors needn't particularly care about a recovery in the wider market as long as their properties are earning good rents. That said, if the recent run of positivity wasn't the recovery then one wonder when is the US market going to recover. However, June's data could yet come to be seen as a blip on the upward trajectory of recovery – time will tell.

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Mumbai Property Market Grinds to a Halt

According to the latest Knight Frank report, the property market in Mumbai is seeing low levels of activity. There are fewer apartments and homes being put on the market as sellers wait for conditions to improve. Buyers are also being put off by increases in building costs, and some of the better neighbourhoods are seeing vacancy rates as high as 48%.

Between 2011 and 2012 just 45,000 apartments were sold in Mumbai's metropolitan region which is well below the market average of 80,000 units a year. There is a current inventory of 80,000 flats, but many buyers are choosing to wait and see believing prices will drop in the near future.

Since the peak of the market in 2007 sales have dropped by more than 60%, and by 35% from 2011. Normally this decline in sales would have brought about a price correction, but this hasn't happened as a delay in approvals has ensured the market equilibrium is maintained. The fall in the number of units launched has offset the impact of prices.

So far this year just 55,000 flats have been launched which is a decline of many 40% compared to the 92,000 units launched in 2011. Developers are choosing to actively delayed project launches, and to sell current inventory before launching any fresh product to help ease any downward pressure on prices. Many developers simply cannot afford to cut prices as the costs of land, raw materials and labour have risen substantially, eating into current operating margins of 30% to 35%.

Foreign Investors Losing Love for Singapore, or Maybe their Bottle

Singapore is seeing fewer foreign investors, and this is at least partially due to the stamp duty recently imposed on overseas buyers. Developers who are willing to absorb at least part of the stamp duty are continuing to see sales. 

The increase in stamp duty was one of several measures imposed by the Singapore government in order to curb sales to foreign investors as there work concerns that housing was becoming too expensive for residents. By the time these measures were in place the international sales market had already quietened down due to the global economic situation, and the introduction of additional taxes has only cooled the market down further.

During the first quarter of this year property values in Singapore fell for the first time in three years, according to data from the government. Property prices at the higher end of the market fell by 0.9% compared to the previous quarter. 

Prices are expected to continue to decline for the rest of this year due to the number of properties currently on the market. Although these price declines are minimal, they are in considerable contrast with the price increases seen over the past few years, as Singapore has seen the largest price gains in the world. 

Between the fourth quarter of 2006 and the fourth quarter of 2011, property prices in Singapore have risen by 50.5%. The only areas to see larger price increases are China, Hong Kong and Israel. In 2007 the price increase for Singapore was an incredible 33%. Singapore is desirable as it is seen as being a relatively transparent market, especially in comparison with other Asian cities. The percentage of foreign buyers increased from 11% in 2005 to 17% in 2011.

Draft Mortgage Law Approved in Saudi Arabia

A draft mortgage law has just been approved in Saudi Arabia, and will allow mortgages to be sold in the kingdom. It is hoped this will help address one of the most critical issues in the Saudi Arabia which is the shortage of housing.

Saudi Arabia is a country of 27 million people, and the majority are under the age of 30. There is a huge lack of affordable housing, and limited finance options to help young people get onto the housing ladder. This new law should help bridge that gap, and will also boost revenue to banks. According to Jones Lang Lasalle, demand could be for between 150,000 and 200,000 units a year, but it's thought the banks are well equipped to cope with this level of demand.

The law has been a long time coming, as it has had to deal with a number of sensitive issues such as how to deal with the homeowner if they default on their mortgage. These types of issues have to be dealt with in an Islamic sharia compliant manner.

Apparently the draft of the new law includes various measures to ensure the safety of the financial system, while making sure the transaction is fair. Some home loans do already exist in Saudi Arabia, and payments are deducted from salaries as soon as they enter bank accounts.

However this is the first time a product can be secured against the property, allowing the borrower to benefit from owning such an asset. According to the Saudi Arabian Monetary Agency, the regulation of the new mortgage sector will be undertaken by the central bank in Saudi Arabia.