Commentary: Why Singapore's private residential market will remain attractive in the long term
Historical data shows Singapore private residential property typically sees a quick rebound after each economic crisis, says OrangeTee & Tie’s Christine Sun.
SINGAPORE: The impact of the coronavirus pandemic has rippled across the globe and disrupted most forms of business activity. Quarantines and movement restrictions imposed in many countries have halted trade, tourism and retail.
Real estate hasn’t been spared either. Singapore’s implementation of circuit breaker measures in April has impacted the private residential property market, as show flats shuttered and house viewings were discontinued.
Strict safe distancing measures have also disrupted the home purchase process for potential buyers, who have to rely on virtual house tours to assess properties.
According to data from the Urban Redevelopment Authority (URA), the overall price index of private homes slipped 1.0 per cent quarter-on-quarter in the first quarter of 2020, after rising for three consecutive quarters.
But this decline is still not as severe compared to initial price falls observed in past crises.
A first quarterly price decline of 1.9 per cent was recorded in 1996 at the start of the Asian financial crisis, while the global financial crisis saw an initial drop of 2.4 per cent in the third quarter of 2008.
How much prices will decline further will depend on the duration of the pandemic. Other factors include the unemployment rate and financial health of home owners.
As of now, we have not seen significant numbers of homeowners defaulting on mortgages, likely because of several past cooling measures such as the TDSR (Total Debt Servicing Ratio) and Mortgage Servicing Ratio (MSR). These instil financial prudence in buyers by capping a borrower’s gross monthly income used to service their housing loans.
These limits will also not apply to the principal and interest for deferred payments on mortgages, as part of the Singapore Government’s package to aid homeowners during this challenging period.
THE RECOVERY IN THE RENTAL MARKET
Investors should take a long-term view in any property investment. Singapore will continue to be a top investment destination and a safe haven for investors.
Despite the current economic slowdown, basic fundamentals that have attracted foreign investors all these years – such as the ease of doing business, transparency, safety and political stability – will likely remain unchanged.
A silver lining in the COVID-19 cloud lies in Singapore’s track record, where the private property market regularly recovers after every economic crisis.
Private properties have generally yielded positive capital appreciation over the past 30 years. Based on URA’s price index, prices of properties have risen across all market segments and weathered through some of the toughest crises including SARS, the Asian financial crisis and the global financial crisis.
For those who intend to buy properties for rental income, the leasing market has remained strong.
After years of being in the doldrums, the rental market staged a remarkable performance in 2019 with higher transaction volume and occupancy rates amid a tightening of new inventory supply and depleting stock. The number of transactions rose 4.5 per cent to 93,960 units in 2019 from 89,904 units in 2018, reaching an 11-year high.
Despite the pandemic, rental demand remains strong, with more leasing transactions and rental renewals recorded last quarter.
Resale volumes increased by 2.4 per cent from 20,703 units in the fourth quarter of 2019 to 21,191 units in the first quarter of 2020.
Rents rose across all market segments, as the overall rental index increased 1.1 per cent quarter-on-quarter and 1.4 per cent year-on-year in the first quarter of this year, possibly because many tenants were reluctant to scout around for alternate housing. Some required immediate lodging to serve stay-home notices after returning from overseas.
MORE BUYERS ARE ENTERING A MARKET
We have seen signs of investors streaming into the market to pick up some value buys. The number of luxury home sales in the Core Central Region (CCR) have been rising over the past few months.
The number of non-landed transactions rose from 666 units in the third quarter of 2019, to 951 units in the fourth quarter and 1,032 units in the first quarter of 2020.
In April, slightly more than a third (36.8 per cent of 277 units) or 102 new home sales were from the Core Central Region.
The highest priced private home transacted was a super-luxury condominium (477 sqm) at 15 Holland Hill for S$13.8 million or $2,692 per square foot in April. This is the third priciest new condominium unit transacted over the past 12 months.
Well-located private homes with attractive pricing also continue to draw buying interest. Properties like Treasure at Tampines, Jadescape, Parc Esta, Stirling Residences, Parc Clematis and Kopar at Newton continue to see steady sales over the past few weeks before the circuit breaker. Many are located near amenities, MRT stations or near the downtown core.
Historical data on private property housing has shown that while sales volume and prices usually dip during a crisis, sales demand typically recovers shortly after.
As sales volume tends to rebound within three to four quarters, the window of opportunity for buying a property during a price correction is quite small.
Our study analysing the profitability of private property over the years also reveals that many who bought new private homes during a downturn and resold them subsequently have made attractive profits. On average, home buyers during the financial crisis in 2008 made the highest gross profits over the last 17 years compared to other buyers who bought properties during other periods of time.
For instance, buyers who bought a mass market home – that is, a non-landed private home – in the Outside of Central Region or suburban areas made an average gross profit of about S$300,000 in the first quarter of 2009, compared to $50,000 to $200,000 for the average buyer outside this time period.
We expect to see a decline in the supply of private homes after 2023 for three reasons.
First, collective sales have slowed since cooling measures were slapped in 2018.
Second, most of the projected mega developments above 1,000 units, such as Treasure at Tampines, Jadescape, Parc Clematis, Parc Esta, Riverfront Residences, Stirling Residences, The Florence Residences and Affinity at Serangoon, have already been launched.
Third, many launched projects have sold more than 30 to 50 per cent of their entire project.
We expect developers to continue to pare down outstanding stock and take a measured approach to land acquisition in this coronavirus climate.
The number of new project launches will decline after 2020 as the last collective sales cycle has ended in 2018 while government land sales have generally been on the decline for the last eight years.
As fewer private homes are slated for completion after 2023, we predict that prices and rents of private homes will likely remain strong in the long term.
THE MARKET OUTLOOK
Many economists have differing views of the global economic outlook though there is a growing consensus of a protracted slowdown, with recovery gradual in the months ahead.
For the real estate market in Singapore, however, buying activities may rebound in some locations when circuit breaker measures ease, given pent-up demand.
After travel restrictions are lifted, some foreign buyers may return.
Over the last past two years, Chinese buyers have formed the biggest foreign buyer group with 2,637 or 7.3 per cent non-landed private home purchases, followed by Malaysians at 4.3 per cent, Indians at 1.9 per cent and Indonesians at 1.6 per cent.
Mainland Chinese buyers may continue to be the biggest group. While China’s economy will experience a slowdown this year, this country will likely see pockets of growth across specific sectors, especially IT, biomedicine and healthcare.
The recent global lockdowns have also seen an exponential increase in production and consumption of e-commerce goods, with China being the powerhouse in this space.
For these reasons, we expect Chinese buyers from thriving sectors to buy homes here. Some may also divert their funds overseas as their currency continues to depreciate.
Notwithstanding the positive long-term outlook for the Singapore private residential market, the year will likely see some weakness in prices and home demand as a result of circuit breaker measures and global economic uncertainties.
Private home prices may fall up to 5 per cent if the pandemic drags on. We project sales of around 13,000 to 14,000 private homes this year, of which 6,500 to 7,500 are new home sales.
MARKET RESILIENCE DRIVING SALES MOMENTUM IN EVERY RESIDENTIAL SEGMENT FOR THE SECOND QUARTER. SINGAPORE PROPERTY MARKET NEWS AND ANALYSIS
Latest Property Real Estate News - Published on26/07/2019
2Q 2019 URA / HDB Real Estate Statistics
Market resilience driving sales momentum in every residential segment for the second quarter.
Private New Home Sales Volume
A total of 2,350 private new homes were sold for the second quarter of 2019. This reflects a 27.9% (q-o-q) increase in the number of units sold as compared to the previous quarter.
Mr. Ismail mentioned that “Amidst the presence of underlying global uncertainties and trade tensions, the stable nature of the residential property market remains a silver lining and driving sales momentum in the second quarter. This can be attributed to a slew of new launches and rightly priced projects captivating the interest of buyers and investors. A trend that we expect to continue for the remainder of the year, with momentum and demand staying resilient. Furthermore, based on our analysis, RCR was the best performing market segment, with an increase of 27.7% for the first 6 months of 2019, as compared to the corresponding time period in 2018.”
Mr. Ismail predicts that the private new sale segment will likely cross the 9,000 mark for the entire year.
Private Resale Volume
2,371 private resale transactions occurred in the second quarter of 2019, a 27.6% (Q-o-Q) increase as compared to the first quarter of 2019, which recorded 1,858 private resale transaction.
Mr. Ismail mentioned that “Traditionally, the sales performance of the second quarter of the year tends to outperform the first quarter. However, the resale market is relatively weakened for this year as compared to the second quarter of 2018. As the effects of the property cooling measures were largely felt in the resale market, causing a change in the sentiment towards these properties. With owners postponing and holding off the decision to sell their properties in this uncertain economic climate.”
For the resale segment, Mr. Ismail foresees that, it will be 8,500 to 9,000 units in 2019.
Private Home Prices
Private home prices in Singapore increased by 1.5% in the second quarter of 2019, as compared with -0.7% drop in the first quarter of 2019.
Mr. Ismail highlighted that “This is the highest price change since the implementation of the property cooling measures. We envision that the prices will grow between +1% to +2% for the year. While, for the overall private residential transactions (new sales, resale and sub-sales), we are anticipating that it will be likely around 18,000 transactions for the whole year.”
A total of 6,276 number of HDB resale transactions occurred in the second quarter of 2019. This was a 29.8% (Q-o-Q) rise as compared to the first quarter of 2019, which recorded 4,835 HDB resale transactions. Additionally, this is a 6.8%increase for the 6 months of 2019, as compared with the same time period in 2018, which recorded 10,399 HDB resale transactions. The HDB resale flat prices had a price change of -0.2% in the second quarter of 2019. The HDB resale price index reached 130.8 a drop from 131.0 in the first quarter of the year.
Mr. Ismail stated that “The public housing market retained its stability, with most transactions occurring at the valuation price or below. Demand has remained strong, primarily due to HDB resale flats being more appealing for newly-wed couples who are looking for an immediate home to settle down, instead of waiting for a completion of a BTO flat. We are expecting that the HDB resale transaction volume, will be within the range of 23,000 to 24,000 for the whole year. In terms of prices, we foresee that the HDB resale price index will be between -1% to +1% price growth for the year.”
HDB to relax rules on CPF use for purchase of older flats; will take effect in May.
SINGAPORE's National Development Minister Lawrence Wong said in Parliament on Thursday morning that his ministry is working out details on relaxing Central Provident Fund (CPF) loan rules on the purchase of older Housing Board resale flats, and will announce them soon for implementation in May this year.
One issue is CPF rules, specifically the restriction in CPF usage for flats with less than 60 years of lease remaining, Mr Wong said.
Some banks also take reference from these restrictions when assessing how much loan to extend. As a result, both CPF and loan quantums are reduced for the purchase of such older flats, he said.
"The CPF rule is intended to safeguard the retirement adequacy of buyers who purchase older flats, but its design has led to some unintended consequences. For example, a buyer of a 39-year-old flat can use full CPF; but just a year later, and the amount of CPF will be restricted.
"And there's no good reason why this should be so just because the flat became a year older," Mr Wong pointed out.
He said the Ministry of National Development and Ministry of Manpower have been studying the issue.
"In fact, the focus should not be on the remaining lease of the flat. What we want to ensure is that buyers purchase flats with leases that are long enough to last them for life.
"And if that is done, then we can relax CPF usage rules, even if the remaining lease is less than 60 years," he said.
Mr Wong had said in August last year that his ministry is looking into how to let buyers of shorter-lease flats dip deeper into CPF funds for their purchase, without compromising their retirement savings.
The move aims to address growing concerns among flat owners over their older flats' depreciating leases and the difficulty in selling these - partly because of the limitations placed on prospective buyers over the use of their CPF funds.
If there is more flexibility in the use of CPF funds to buy shorter-lease flats, it would help those who want to purchase flats in more mature HDB estates.
MND Slashed Land Supply Under 2H 2019 GLS Programme
The government has cut the supply of private residential units for 2H 2019, under Government Land Sales (GLS) programme. TheMinistry of National Development (MND) demand continues to fall after cooling measures were introduced.
While there are fewer units, the supply will be enough for Singapore’s housing needs, and that’s because of the ample units in the pipeline in addition to vacant homes currently available.
13 sites were released for the second half of this year – 5 on the confirmed list and 8 on the reserve list.
The 5 confirmed private residential sites are located at Bartley Road, at Irwell Bank Road, and 2 at Canberra Drive. There’s also an executive condominium (EC) site at Fernvale Lane. Together, these sites can yield about 1,715 private units. That’s nearly 300 fewer than the units released earlier this year.
MND also highlighted a decline in the transaction volume for the 3rd consecutive quarter in Q1 2019. Furthermore, property developers have also moderated their demand for land. Property analysts say buyers may not feel the effects too severely. Instead, developers and the construction sector are the ones under pressure.
Analysts said that most of these new homes have to be sold within five years, otherwise, the property developer will have to bear an additional 25% of its total cost under the Additional Buyers’ Stamp Duty (ABSD) ruling imposed on property developers – which is a significantly hefty sum to most.
As sites on the reserve lists are being launched for sale via a triggering bid, analysts also said that these sites will be appealing to developers who have a strong balance sheet or not bogged down by existing inventory.
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