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Skyscraper Boom in Melbourne Flags Glut

- October 31, 2014 No Comments

Australia’s second largest city is seeing its skyline being transformed at the fastest pace ever by Asian developers building residential towers. Now there are concerns too many are going up.

Companies including Hong Kong-based Far East Consortium International Ltd., Beijing-based Sino-Ocean Land Holdings Ltd. and Singapore’s Aspial Corp. have flocked to build high-rises in Melbourne as lifestyles change and Chinese demand climbs. Twenty-three buildings taller than 200 meters (656 feet) are being planned or built, the most on record, according to Urban Melbourne, a website that tracks developments in the city.

“The level of building is unprecedented,” said Cameron Kusher, Brisbane-based senior research analyst at property information provider RP Data Pty. “The supply has been sufficient over recent years, and that could turn very quickly into an oversupply.”

Overseas developers are responding to a shift away from the great Australian dream of a suburban life centered around backyards and swimming pools. They’re also reacting to ever-increasing demand for new, centrally located apartments from Chinese buyers seeking to escape their own faltering housing market and improve their quality of life.

Melbourne was among the 10 most unaffordable housing markets in the latest report by consultancy Demographia released in January, which compares prices across nine countries.

About 91,000 apartments in almost 530 projects are in planning or construction across all of Melbourne, according to Urban Melbourne data. Approvals for dwellings excluding houses jumped 66% in August from a year earlier in the greater Melbourne area, data from the statistics bureau showed.

Only six towers higher than 200 meters have been built since 1986, Urban Melbourne data show.

Convenience, reducing commuting times and a desire to be near city centers are driving a high-rise boom akin to Hong Kong and Singapore, where residential projects include communal swimming pools, barbecues, roomy foyers, theaters and entertainment rooms.

Deborah Flanagan, a 57-year-old school teacher, is a recent convert to high-rise dwelling. The life-long country resident and her partner are buying their second apartment in two years on the 60th floor of the 63-story Eq. Tower in Melbourne.

“You’ve got so much that’s accessible and close, and the unit will have magnificent views,” said Flanagan, whose three-bedroom apartment is set to be completed in 2017. “As mortality looms, we want a taste of living.”

Melbourne-based ICD Property is developing Eq. Tower in partnership with Chinese developer Sino Ocean. Closely held ICD was founded by Michael Mai, the son of Mai Boliang, executive director of Hong Kong-listed China International Marine Containers Group Co.  

While some developers are concerned demand won’t meet the rising supply, Melbourne’s population and home-price growth, and its ranking as the world’s most-livable city for four years running by the Economist Intelligence Unit, are proving irresistible for many, according to Matthew Khoo, development manager for ICD.

The city’s population could grow to 7.7 million by 2051 from 4.4 million now, according to estimates from Plan Melbourne, which sets out a blueprint for the city until 2050.

“Banks require that developers have a certain number of pre-sales, and that can happen only if there’s appetite,” Khoo said, adding that all 634 units at Eq. Tower have been pre-sold. “We were concerned demand wouldn’t meet supply, but it has been stronger than we anticipated.”

The average price of a two-bedroom apartment at Eq. Tower is A$540,000, according to ICD.

Apartment values in Melbourne rose 5.2% over the 12 months through September, according to the RP Data CoreLogic home value index.

“In a country like Australia, people are historically not used to going up,” said Chris Hoong, Hong Kong-based managing director at Far East Consortium. “But when housing moves further and further away from the city, when you have to travel an hour, that’s when city living has its appeal.”

Far East, one of the earliest developers to introduce “Hong Kong-style” high-rises in Australia, is planning a four-tower complex in Melbourne’s center with about 3,000 apartments. The project, with its largest building expected to be more than 300 meters tall, is located across from the company’s other A$1 billion four-skyscraper Upper West Side that’s now under construction.

The average price of an apartment at Far East’s development is about A$9,500 per square meter, according to the company.

“There are more Asian developers now who have quite a lot of experience developing skyscrapers, more than many of the local developers,” said Louis Christopher, managing director of Sydney-based SQM Research Pty. Many of them are building apartments in Australia to satisfy growing demand from foreign buyers, he said.

Australia is the No. 1 destination for Chinese seeking to emigrate after Canada, which in February implemented restrictions on foreign investment and immigration, according to a report by CLSA Asia-Pacific Markets.

Chinese were the biggest investors in Australian residential and commercial property in the year through June 2013, according to the latest figures from the Foreign Investment Review Board.

Foreign buyers accounted for a quarter of demand for new homes and 11.5% of existing homes in Victoria in the three months to Sept. 30, the highest among all states, National Australia Bank Ltd. said in an Oct. 15 report. It did not break down demand by nationality.

Among other planned projects is Australia 108 in Melbourne’s center. The project, being developed by Aspial, is set to become the first 100-plus-story building in the Southern Hemisphere, according to a Victorian state government statement in June. The tower, at 319 meters, will include 1,105 units.

The state government also approved a 75-story tower with 622 apartments, being developed by Melbourne-based Golden Age Group (Note by The Folks @SG PropTalk: project name is Victoria One, designed by Elenberg Fraser architects. We also found a video presentation of the project) . In addition to traditional amenities including pools and gyms that many apartment buildings have, extra features include poker rooms and guest lounges to help attract buyers, Golden Age founder Jeff Xu said.

“The house on a quarter-acre block is losing relevance today,” Xu said in an e-mail.

The government of Victoria, of which Melbourne is the capital, estimates about 1.6 million additional homes would be needed to accommodate the city’s population growth, with apartments and townhouses making up two-thirds of these, according to Plan Melbourne.

The state government’s goal of higher density, which it is facilitating by rezoning certain areas to allow for high-rises, is encouraging developers, even when the demand to absorb the new supply is not evident, according to Andrew Wilson, senior economist at property information firm Domain Group.

Melbourne is facing the prospect of a forest of empty high-rise towers in its central business district,” said Wilson. “We have yet to see the outcome of this record level of apartment construction.”
Source: Bloomberg

2 mega residential projects looked to be coming our way!

- October 30, 2014 No Comments

Provisional permissions have been given in the third quarter by URA for two mega private residential projects of over 1,000 units each.

The first is for Sims Urban Oasis, 1,024-unit condo to be built by GuocoLand on a 99-year leasehold site fronting Sims Drive, Aljunied Road and Pan Island Expressway.

The group, controlled by Malaysian tycoon Quek Leng Chan, paid $530.89 million or nearly $688psf ppr for the nearly 2.4 hectare land parcel at a state tender that closed in late April.

As some of you may recall, the wife and I were at the "community outreach" discussion for this project some months ago and had blogged about it.

The second permission was given to Kingford Property Development to build a 1,165-unit project along Upper Serangoon View. The project, Kingsford Waterbay, is located on two adjacent river-fronting sites that was clinched for $460.4 million or $522psf ppr at a state tender that closed last November. The approval granted is for 1,157 apartments, 6 terrace houses and 2 semi-detached houses.

So it seems like everyone wants to do a "CapitaLand" these days. While the wife and I hope that these mega projects will garner similar mega take-up rate, we are not exactly holding our breath on it...

Battersea Power Station Phase 3 launching in Singapore this weekend!

- October 29, 2014 No Comments

The Battersea Power Station project team will showcase 539 of the 1,305 new homes in Phase 3 of the development at the St Regis Hotel in Singapore from Oct 31 to Nov 2.

Singapore is one stop of exhibitions in 11 countries this week to market the project, which is a conversion of a large derelict power station in central London into a thriving complex of modern shops, offices and apartments.

London, Kuala Lumpur, New York, Dubai, Paris, Hong Kong and Shanghai will also hold exhibitions from Oct 31, while Los Angeles, Milan, Tokyo, Beijing and Doha will hold theirs the following week.

The remnant units from earlier phases will also be available for sale this round. Everything, save for a handful of penthouses in Phase 1 that are gradually being released into the market, and the last few remaining units from Phase 2, have completely sold out.

Pricing for the homes was also released on Tuesday.

Studio apartments start from £495,000($1.02 million); one-bedders from £590,000; two-bedders from £1.2 million; three-bedders from £1.9 million and four-bedders from £3.2million. Prices for the few penthouses are available on request, but information on the unit sizes or per square foot prices is not available.

The £8 billion Battersea Power Station project, on the south bank of the River Thames, has been labelled the "jewel in the crown" of central London's regeneration area by UK Prime Minister David Cameron.

But a proposed annual "mansion tax" on UK properties valued at £2 million which may kick in next year, or rather the confusion surrounding the matter, has dampened enthusiasm for properties priced around the £2 million mark.
This is because the tax is "by no means certain - either the level of taxation, how it will be calculated and collected, or when it will come into being".

Another pitfall of buying London properties now could be that a lot of flats are currently being sold for investment, so there will be a huge number coming onto the rental market at the same time.

The Battersea site is owned by a Malaysian consortium comprising SP Setia, Sime Darby and the Employees' Provident Fund.
Info source: BT

The wife and I just have two words to offer... Caveat Emptor.

But this should be interesting enough for a drop by at the St Regis just to take a look-see, if you can spare the hour or two this weekend.

Here's an informative video on the vision of Battersea Power Station redevelopment by Rafael Vinoly, the Master Planner of the project.

Readers' Survey 2014: The results

- October 28, 2014 No Comments

First off, the wife and I would like to thank our readers that had taken time to respond to our survey. Your inputs are much appreciated and have definitely given us more insights about you and what you think about SG PropTalk.

And to those who have been coming to read our blog often enough and yet do not deem us worthy of that 5 minutes of your time, well... it takes all kinds to make this world so no hard feelings here. We'll just go on thinking that you probably do not have a Google account that's necessarily to participate in our survey. Emoji

Back to the order of the day: The wife and I had received over 10 responses during the course of the 2 weeks. And as promised, here are our findings from the survey: 

1. All but one of you had supposedly stumbled upon SG PropTalk while surfing the Internet.

2. More than 90% of you actually visit SG PropTalk at least once a week, with a couple of you saying that you do so on a daily basis (thank you!).

3. When comes to the purpose of visiting SG PropTalk, we get quite an even split between those who are researching to buy/invest and those who just love reading about property.

4. Content wise, most of you found that SG PropTalk is somewhat informative although 25% deemed us very informative. And nobody said we are a load of crap (phew!) or maybe you are just far too polite to say so!

5. 75% of you enjoyed reading the most about our new project reviews. But we were again surprised to learn that 25% actually valued our random thoughts and opinions more than anything else - so there ARE people out there that actually give a damn about what we think and say! Emoji

6. Although 40% of you do not visit the Discussion Forum, we reckon that it is still relevant to the other 60% who do visit it occasionally. The wife and I are looking to revamp the Forum a bit but are still pondering on how to do so. Suggestions?

7. In terms of geography, it is hardly any surprise that the majority of you reside in Singapore, although we do have 2 respondents currently living overseas.

8. When comes to whether you will recommend SG PropTalk to your friends and family, this is a resounding "been there, done that" - thank you and please keep spreading the word about us!

9. And on the subject of property-related seminars, more than 50% of you had indicated that you will try to make time for it. While there is nothing in the near horizon in terms of our very own seminar, we have started informing readers about third-party seminars that we deemed " worth attending".

In addition, the wife and I had received some comments/suggestions that we wish to highlight and respond to:

1)     Suggestion of maybe we can update readers of any left-over units from developer's fire sales - the wife and I will be delighted to oblige. Only problem is that we are not exactly on the "speed dial" of any developer (yet). Then again, SG PropTalk is probably not "high profile" enough to be deemed worthy of their time. But whatever info that we get, we be sure to pass it on to our readers.

2)     Suggestion that we should start a minimal advisory fee service for "novice" property buyers - the wife and I did try to embark on such with SG PropConsult but this sorta died a premature death due to lack of time on our part. Another consideration is that if we do start (or re-start) a service as such, what kinda take-up rate can we expect? We would love to hear more from our readers on this one.

3)     Suggestion that we start a buy/sell section of properties that we have vetted and deemed "a good buy" - there are already tons of such online (although none are "vetted" to any degree) so we are unsure if there is really demand for another property buy/sell column on our blog. Again we would love to get more inputs from our readers on this.

4)     Finally, we (or rather, I) had a request to perhaps not to address my wife as "the wife" and revert to the more proper "my wife" instead. This is not the first such request that we have received over the years. Although our English teachers will probably frown big-time on our use of "the wife and I", the phrase has become synonymous with our blog over the years. And if the wife (okay, MY wife) has no issue with it, we (I) do not see the need to conform for the sake of it.

Well, there you have it! Our sincere thanks once again to those who have helped us with the survey. The wife and I are looking forward to hearing more of your inputs on the suggestions made. But you have to pardon us for not holding our breaths while waiting for these... Emoji

Resale prices slip in September: SRPI

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Resale prices of private homes slid in September according to Singapore Residential Price Index (SRPI) estimates, which were released on Tuesday (Oct 28).

The SRPI, compiled by the National University of Singapore's Institute of Real Estate Studies, showed overall prices fell 0.7% in September from the previous month. In August, prices rose 0.2% from a month earlier.

Prices of homes in the central region, excluding small units, led the decline with a 0.9% fall. Homes in the non-central region, excluding small units, fell 0.6% in September from August.

Prices of small units, which have a floor area of 506sqf or below, bucked the trend, rising marginally by 0.4% on-month.
Source: CNA

Australia 108 (Preview - sorta)

- October 27, 2014 No Comments

You probably would have seen it too - the TV advert blast and full-page advertisements over the past week announcing the launch of Australia 108, a new residential project to be developed by World Class Land, the property arm of Aspial Corporation (yes, the jewelry people but hey, everyone wants to be a developer these days!).
Some facts about Australia 108:

1. Standing at 319m tall, it will be the tallest building in Melbourne and the second tallest building in the whole of Australia.

2. It will be the only building in the Southern Hemisphere that comprises 100 storeys.

3. The skyscraper will house 1,105 residential units. Construction is set to commence in mid-2015 and expected TOP is in late-2019.

So why is the project named Australia 108 when it is only 100-storey high? 

When the project was first mooted in 2013, it was supposed to be 388m high and contained 108 storeys. The proposal was shelved after it struggled to meet conditions imposed by the government authorities. The project was subsequently bought by Aspial Corporation for about A$30 million during late-2013. Plans were resubmitted in 2014 for a 319m tall, 100-storey building. However, Aspial has decided to retain the project's original name.

Australia 108 is sited in the Southbank precinct of Melbourne. For those who tend to orientate themselves using the casino as the main point of origin, the project is about a 3-minute walk from the Crown Casino.

The project's internal configuration is as follows:

1. The first 10-floors are parking lots meant for residences within the development.

2. The 11th - 68th floors are your typical apartments with unit types ranging from 1- bedroom, 2-bedroom + 1 bath and 2-bedroom + 2 baths.

3. The 68th and 69th floors (i.e. the yellow-colored protruding portion of the building) are "maintenance floors"

4. The 70th - 100th floors are designated as "Cloud Residences" - we were told that you are literally living amongst the clouds on these levels.

Each floor in Australia 108 typically houses 18 apartment units. So loneliness will probably be the last thing on owners' minds given the number of neighbors you can expect on your floor.   

For those who are already arming themselves with cheque books,apartments in the project will only be released for sale on 1 Nov 2014. However, marketing agents are already collecting cheques from perspective buyers as an expression of interests. How this works is that they will collect a cheque from you in the amount of either S$5,000 or $10,000 (depending on the size of the unit that you are interested in). You are allowed to back off from the deal during the period of after you put in your cheque and before unit selection on Nov 1. But after you have selected the unit and signed the S&P letter on Nov 1, there is no backing out of the sale and you have 7 working days to come up with the first 10% of initial payment for your unit. The balance 90% is only payable upon TOP of the project.

Pricing wise, how much you need to pay for a particular unit type depends primarily on its facing. The supposed best/most popular units are those facing the North (the CBD area with all the city lights) and South-East (the direction of the Melbourne F1 track and Bay area). So to take the example of a 1-bedder apartment of around 35sqm:
North (city view):      A$525 - 560K
South (bay view):     A$515 - 540K
East:                         A$535 - 550K
West:                        A$495 - 510K

A couple more things that may be of interests to those first-time foreign property investors looking to buy into Australia 108:  

1. The stamp duty for this project is only 1% if you buy it during the launch. This is the standard duty for projects that have not started any form of construction yet. But once construction starts, the stamp duty is increased to 4%.

2. Stamp duty is also payable by the seller when you decide to resell your unit in future. This is unlike when in Singapore, where stamp duty only apply to buyers. The same 4% applies.

3. After payment of the initial 10% and up till just before the project's TOP, you can still "flip" your unit to anyone, including another foreign buyer. But once the project TOP, your only option for resale is to someone holding Australian citizenship, i.e. you can no longer sell your apartment to another foreign buyer. This is a rule mandated by the Australian government to rein in runaway property prices.

4. A capital gains tax of around 33% of profit made is applicable on resale.

Yield wise, we have done the sums on how much in terms of returns an apartment in Australia 108 is likely to fetch, based on current estimated rental and upkeep cost figures. Looking at a 60.6sqm South-East facing, "2-bedroom + 2 baths" unit on the 39th floor that costs A$710K, you are looking at a net yield (after income tax) of about 3.4%.

The rental yield may sound pretty decent compared to what you can possibly get in Singapore nowadays, but bear in mind that the mortgage rate for Australian property is anywhere between 3+ and up to 5%, depending on which bank you decide to get the loan from. So if you intend to finance a huge chunk of the purchase cost, you will probably not see very much of the rental returns.

So what remains is the capital gains.The marketing agent kept reminding us that investment into Australian property is more of a long-term play. And judging by the number of units within Australia 108, the wife and I reckon that it is unlikely to be one of those projects that will see a 15 - 20% gain within the next 12 - 18 months... unless the project achieve exceedingly good take-up rate during its launch in Singapore and Australia (after November 1). But the good news is that based on the late-2019 TOP date, specuvestors should have at least 4 years to try and "flip" their investments for profits.

Below are photos of the "2-bedroom + 2 baths" showflats.

And if the crowd at the sales gallery is any indication, there are indeed quite a lot of people in Singapore with money to spend but nothing to buy locally...


Photo of Concourse Skyline

- October 26, 2014 4 Comments

The wife and I happened to be at Jalan Sultan this morning and managed to capture this photo of Concourse Skyline.

Incidentally, we were standing along the walkway of Keypoint, which will soon be demolished to make way for City Gate.

Despite the two sites being just diagonally across from each other, the wife and I will much prefer the location of Concourse Skyline over City Gate

U.S. new home sales at 6-year high but recovery still fragile

- October 25, 2014 No Comments

Sales of new U.S. single-family homes rose to a six-year high in September, but a sharp downward revision to August's sales pace indicated the housing recovery remains tentative.

According to the Commerce Department, sales increased 0.2% to a seasonally adjusted annual rate of 467,000 units - the highest reading since July 2008. August's sales rate was revised down to 466,000 units from 504,000 units.

Economists polled by Reuters had forecast new home sales at a 470,000-unit pace last month.

"We expect the housing market recovery to remain relatively gradual over the coming months," said Gennadiy Goldberg, an economist at TD Securities in New York.

New home sales, which account for about 8% of the housing market, tend to be volatile month to month and large revisions are not unusual. Compared to September last year, sales were up 17%.

Housing is slowly regaining its footing after activity stalled in the second half of 2013 as mortgage rates soared. With the 30-year fixed mortgage rate falling this week to its lowest level since June of last year, sales could pick up.

Mortgage rates have declined in tandem with a sharp fall in U.S. Treasury debt yields as slowing global growth and a sharp sell-off in international stock markets prompted traders to push back expectations for an interest rate increase by the Federal Reserve.

Slow wage growth, however, remains a constraint for an acceleration in home sales. Data this week showed sales of previously-owned homes touched a one-year high in September.

Last month, new home sales fell 8.9% in the West, handing back some of August's 28.1% surge. In the populous South, sales rose 2.0%, while they increased 12.3% in the Midwest. Sales were flat in the Northeast.

With sales rising modestly, the stock of new houses available on the market rose 1.5% to the highest level since July 2010. Builders have been ramping up construction and the improvement in inventory should provide buyers with more choices and temper house price increases.

At September's sales pace it would take 5.3 months to clear the supply of houses on the market, unchanged from August. Six months' supply is normally considered a healthy balance between supply and demand.

The median new home price fell 4.0% to $259,000 from a year ago. 

Source: Reuters 

London: First-time buyers banking on "Bank of Mom & Dad"

- October 24, 2014 No Comments
Even the Bank of Mom and Dad can’t keep pace with London’s spiraling property market.

The average cost of a home in the city has climbed to more than 500,000 pounds (S$1,000,000), forcing first-time buyers to make the largest down payments as a proportion of their income in at least a decade, according to an analysis of Council of Mortgage Lenders data by Neal Hudson, an associate director at Savills Plc. It’s also prompting them to take out larger mortgages, the CML said.

At almost four times income, lending multiples for first-time buyers of average London homes are close to the limit for many banks after regulators last month ordered a crackdown on risky lending. That spells further financial pain for parents, who give their children about 2 billion pounds a year to help them get onto the property ladder, housing charity Shelter said in July 2013.

“Young people in decent jobs are relying on their parents just to rent a home, never mind save for a mortgage deposit,” National Housing Federation Chief Executive Officer David Orr said by e-mail yesterday. “Without the support of their parents, an entire generation is at risk of missing out on home ownership. And for those who cannot rely on parental help, the situation is even more bleak.”

London home values rose 20% in the 12 months through August, according to data compiled by the Office for National Statistics. That pushed the average price up to 514,000 pounds, about 46% more than before the financial crisis. Which is where the Bank of Mom and Dad comes in.
Two-thirds of first-time purchasers in the U.K. now receive money from their parents when buying a home, double the level five years ago, according to the National Housing Federation, a lobby group for affordable homes.

The average first-time buyer in London borrowed 212,000 pounds in the second quarter, or 3.9 times their income, compared with 3.7 times a year earlier, the Council of Mortgage Lenders said Aug. 27. They’re paying 62% of their after-tax salary to make the mortgage payments, the highest level in six years, according to Nationwide Building Society.

That’s despite London home buyers having average down payments of 130% of their salary, the most in at least a decade, Hudson of Savills said. The extra savings, or money from their parents, was needed as high loan-to-value mortgages were withdrawn in the aftermath of the financial crisis, he said.
In Ireland, which suffered Western Europe’s worst property crash, down payments for first-time buyers have fallen from about 180% of income in 2008 to around 110% in 2013. It’s now considering limiting high loan to income mortgages.

The prospect of higher interest rates in the U.K. is starting to deter buyers. Mortgage approvals for house purchases fell 10% in September from a year earlier, the British Bankers’ Association said today. Housing-market transactions may have dropped 9% from August, according to an Oct. 10 report by Acadata and LSL Property Services.

London, which was first to emerge from the last U.K. property slump, is seeing the biggest drop in demand. Foxtons Group Plc, a property broker based in the U.K. capital, today said a “sharp” slowdown in the number of homes being sold in the city will cause its 2014 earnings to drop. That triggered a 20% decline in the company’s shares.
Many London first-time buyers find themselves relying on the Bank of Mom and Dad, “who themselves will be feeling the pain of persistently low interest rates on savings they may have,” said Richard Sexton, a director at property appraiser e.surv. “Moving it from a low-interest account to invest in property is probably an attractive choice for many.”

To increase lending, the government introduced the Help-to-Buy program, which enables home purchasers to take out a loan with a down payment of as little as 5% on properties valued at as much as 600,000 pounds. It also plans to make it easier for people aged 55 or older to access their pension fund to draw down a number of lump sums instead of just one, which may be used to boost payments to children for homes.
Regulators are moving in the opposite direction, introducing measures to limit lending. These include restrictions on high loan-to-income mortgages and a stipulation that lenders turn down credit to homebuyers who fail a stress test, which assumes an immediate 3 percentage-point increase in the benchmark interest rate of 0.5%.

Lloyds Banking Group Plc, the U.K.’s biggest mortgage lender, and Royal Bank of Scotland Group Plc said this year they will limit customers to a maximum of four times income on mortgages of 500,000 pounds or more to damp house price inflation in London.

About half of new mortgages in London are for four times income or more, according to an estimate by Julian Sinclair, chief investment officer at Talisman Global Asset Management Ltd. That “just shows how stretched new mortgage lending in London is, especially relative to incomes,” said Sinclair, whose company oversees 2.5 billion pounds of equities, credit and private lending.

Parents are giving 23,000 pounds for each child’s first home purchase, Shelter said on Sept. 16. Almost 20% of parents used money that had originally been set aside for retirement or elderly care.
In London, “most prospective first-time buyers would be unable to afford the repayments on a 90 to 95% loan to value mortgage even with current low ortgage rates,” Hudson said. “The majority of first-time buyers that are able to purchase in London are those with a large deposit available.”

Parts of the U.K. capital are already off-limits to most first-time buyers. About 56% of homes in London’s best districts, including Chelsea and Notting Hill, are now worth 1 million pounds or more, Marsh & Parsons Ltd. said in a report today. Investors were the biggest buyers of homes in prime neighborhoods, purchasing 26% of the properties, down from a record 31% in the previous quarter, the broker said.
Source: Bloomberg

So the concept of FAMA (i.e. Father & Mother Assistance) is quite universal these days.

But with the (albeit slower) marauding herds of rich Asian buyers that continue to buy into the London market, the wife and I envisage that it will continue to be an uphill battle for the local first-time buyers and their parents...

First Scottish tax on housing purchase in 300 years looks to cool market

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Buyers and sellers of homes in Scotland are rushing to close deals before the first new tax in 300 years imposed by a government in Edinburgh takes force in April.

The regional parliament approved the tax on property transactions using powers granted to it by the U.K. prior to Scotland’s failed bid for independence in September. The levy hits buyers of expensive homes the hardest, while sparing Scots purchasing the cheapest housing.

“I’ve already had phone calls from people wanting to accelerate the process to make sure that their property is sold prior to April,” Edward Douglas-Home, a partner at Knight Frank LLP’s Edinburgh office, said on Oct. 10, the day after the rates were announced.

The nationalist government’s plan, designed to reduce inequality, replaces a U.K. duty that Scotland’s finance secretary called “unfair.” The Scottish law will boost taxes by an average 56% for buyers, according to a calculation by realtor Savills Plc. The higher costs, in combination with U.K. mortgage restrictions, threaten to hobble the housing recovery in Scotland, where price gains have slowed this year.

“The cost of transacting property is going to go up in Scotland and all else being equal, you’d expect that to dampen the market and lead to less liquidity,” saidEd Stansfield, chief property economist at Capital Economics in London, who has worked as adviser to the U.K. Treasury.


Finance Secretary John Swinney said on Oct. 9 that the Land and Buildings Transaction Tax, which takes effect April 1, will help 49,000 buyers at the lower end of the market. Purchasers of homes costing 135,000 pounds (S$275,500) or less will incur no tax at all.

The rates for Scots paying the levy apply to the portion of the home’s value that falls within different bands: A 2% on values up to 250,000 pounds; 10% up to 1 million pounds, and 12% on homes worth more than that.

Swinney announced the rates as part of his budget for the next financial year. While the tax law was passed last year, the bands are still subject to approval by parliament, where the Scottish National Party controls the majority.

The current U.K. Stamp Duty is a “slab” tax, in which a single rate applies to the entire home price. It starts at 1% for houses between 125,000 pounds and 250,000 pounds, rising to a maximum 7% on properties worth more than 2 million pounds.
Savills Research said the change would increase the tax on a 363,000-pound Edinburgh average family home to 13,600 pounds, or 25%. Taxes on a home valued at 450,000 pounds would increase by 65%.

“We were all very shocked,” Ben Fox, an associate director for Edinburgh at Savills, said about the rates. “These were much more aggressive than we certainly had anticipated.”

Scotland is imposing the tax after the Bank of England moved to restrain soaring home prices in the U.K., primarily in London, where values have climbed more than 50% in five years. The BOE placed limits on mortgages worth more than 4.5 times a borrower’s annual income and required lenders to reject loans for buyers who fail a stress test that assumes an immediate 3 percentage-point increase in the benchmark interest rate.

The standard variable rate in the U.K. was 4.45% on Sept. 30, up from 4.35% a year earlier, according to the BOE. The yield on 10-year government bonds was 2.20% today, down from 2.63% a year ago.

Mortgage lending has been growing in Scotland this year. U.K. lenders granted 28,600 home loans in Scotland in the first half of this year, an increase from 23,800 in the first two quarters of 2013, according to data from the Council of Mortgage Lenders. That’s down from 104,900 in all of 2006, before the global financial crisis the following year.

The housing levy was authored by the SNP-controlled government. The party won a landslide victory in the 2011 parliamentary elections that paved the way for the vote on its flagship policy of independence. The parliament had been re-established in Edinburgh in 1999 after being disbanded in 1707 with the Act of Union that formed the U.K.

The semi-autonomous government has power over health, transportation and education, while most taxation, along with foreign policy and social welfare, is controlled from London. The U.K., in a bid to appease nationalists, gave Edinburgh authority over some tax policy, such as housing, two years ago.

In the referendum for independence, 55% of Scots opted to remain part of the U.K. as Prime Minister David Cameron and the main U.K. political parties pledged to cede more power to Scotland, including over personal income tax.
The “no” campaign targeted Scotland’s future currency by ruling out sharing the pound with an independent state. That raised the possibility of Scots having mortgages in a currency they didn’t get paid in.

The property levy fits the SNP’s agenda of helping lower-income Scots in the face of benefit cuts by the government in London and expected proposals for tax breaks for wealthier earners by Cameron ahead of the 2015 U.K. election.

Invoking economist Adam Smith, who developed his theories and lectured at Edinburgh University, Swinney, the finance minister, said the new regulations were based on the principle “that taxes should be proportionate to the ability to pay.” The levy will ensure “certainty, convenience for the taxpayer and efficiency of tax collection,” he said in an e-mailed statement.

Edinburgh, Scotland’s financial capital and home to fund management companies overseeing at least $800 billion, accounted for more than half of all sales valued at 1 million pounds or more in the first six months of this year.

House price gains have been slowing in Edinburgh this year. The average value of a home was 220,174 pounds after an annual rise of 3.6% in the July to September period, the ESPC law firm group said in its report last week. That compares with a 5.6% gain in December through February.

Nationwide, housing sales have been expanding in fiscal 2014. The total value of residential sales was 13.8 billion pounds, 22% more than the previous year and the highest since the height of the previous boom in 2008. The value is down 7.4% compared with 2004.

Realtors said they expect the new tax to slow the market by making it harder for prospective buyers to save enough for a down payment and secure a mortgage. Douglas-Home of Knight Frank said purchasers will look to have some or all of the costs absorbed by reductions in housing prices.

“It’s going to significantly reduce their ability to spend,” he said.

 Source: Bloomberg