Why one must remain cautiously optimistic about the state of real estate
US housing market is showing signs of recovery with prices up in May 2013.
The unemployment rate fell from its October 2009 peak of 10 per cent to 7.4 per cent in July 2013. US Federal Reserve continues with open market operations and have kept interest rates low. Stable job gains, low mortgage rates and steady price increases have encourage purchase of homes. Residential investment add to US GDP growth in the second quarter of 2013, which grew at an annualised rate of 1.7 per cent. UK housing market is also improving on account of mortgage subsidies and increase in bank loans to first time buyers. The home prices are increasing, mortgage rates are falling, maintaining the affordability for first-time buyer loans. The funding for lending scheme which was launched in August 2012 had also revived UK housing sector. French property sector struggles to revive on account of its austerity measures.
In China the real estate investment slowed in the first half of this year. In recent years the government has increased down payments and taxes on new property purchases, making it more complicated for buyers. Indian property market is witnessing a slowdown on account of weak economy and inflationary pressures. The real estate regulatory bill, which was passed in June 2013 will encourage transparency and accountability in India. In Singapore by end of March 2013, private-home prices had surged by nearly 60 per cent since the second quarter of 2009. A combination of low global interest rates, rising leverage and surging property prices pose significant risks to financial stability in Singapore. Monetary Authority of Singapore was concerned about rising household debt and hence in June 2013 brought down debt servicing framework for property loans.
In July 2012 Saudi mortgage law was approved to encourage banks to expand real estate lending. In Feb 2013 the mortgage regulations outlined three of the five laws that make up the package of changes in mortgage law. They include real estate finance, financial lease and Law on supervision of finance companies. Rules on the enforcement of foreclosures and mortgage registrations are yet to be completed. The impact of the mortgage law will have its full effect on home ownership only after the supply of housing becomes more affordable. Saudi Arabia will allow foreign financing companies to operate in the kingdom to boost the real estate financing sector and the permission for these firms will be in accordance with the provisions of the new mortgage law.
The UAE economy is showing signs of recovery and confidence is emerging in trade, tourism and services sector of Dubai. The property transactions in Dubai increased in the first half of 2013 by close to 70 per cent when compared to same period last year. The merger of Abu Dhabi-based property developers Aldar and Sorouh which happened this year can enable revival of Abu Dhabi property market.
Qatar’s office market demand is primarily being driven by large Government and financial related bodies. In the hotel sector new hotels were opened in 2012 such as St. Regis, Intercontinental Doha city hotel and Hilton Doha. Many new hotels planned in coming years. In the residential market demand prevails in Pearl and WestBay. The infrastructure development in Qatar can revive its property market. According to a recent report of S&P, lending growth in Qatar in last two years was driven by government and quasi government institutions and real estate and risks remain elevated to Qatari banks on high exposure to real estate lending.
The real estate sector in Oman is being driven forward by increased government spending and increasing interest in integrated tourism developments. Rents are rising at projects such as Muscat Hills and The Wave, both examples of integrated tourism complex (ITC) developments. Further development of Muscat International Airport is going to boost the warehousing/ logistics sector. Demand for affordable housing in the sultanate of Oman remains high. Kuwait real estate sales had gone up by 3 per cent in first six months of June 2013 when compared to same period last year with major contribution from the commercial sector.
By: Dr R. Seetharaman
The author is group chief executive officer at Doha Bank.