An analysis of Singapore’s property market this year

whycannot SG

November 30, 2009 by admin
Filed under Opinion

By Khalil Adis

[Khalil Adis a former editor of Property Report. He now writes for Property Report, Property Guru and Temasek Review]

2009 has been a roller-coaster ride for Singapore’s private property market and 2010 will be an equally challenging year for the HDB resale market.

A topsy-turvy year

2009 has so far been a year of paradox for Singapore’s private property market which first recorded the worst fall in history in property price index in the first quarter of 2009 followed by a stunning V-shaped recovery with the sharpest increase in a decade in the third quarter.

The first quarter witnessed the price index dropping 14.1 percent quarter-on-quarter.

However, just two quarters later, the private residential market posted a 15.8 percent increase, data from the Urban Redevelopment Authority’s (URA) showed.

According to the URA’s data, prices of non-landed private residential properties increased by 15.2 percent in the core central region, 18.5 percent in the rest of central region and 16.1 percent in the outside central region in the third quarter.

In comparison, prices of non-landed private homes decreased by 5.2 percent, 4.4 percent and 2.3 percent in the core central region, rest of central region and outside central region respectively in the second quarter.

This sharp V-shaped recovery has prompted fears that a property bubble was forming and that property prices in Singapore have become too inflated driven by low interest rates.

So in September, the Singapore government took measures to cool down the property market by making it harder for homebuyers to defer payments by removing the Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL) and releasing more land.

Before the intervention, property showrooms were filled with agents armed with blank cheques acting on behalf of speculators.

This has resulted in escalating property prices, which has put genuine homeowners at a disadvantage.

Property firm DTZ notes that the price hikes since the second quarter of 2009 has resulted in diminishing buying power of Housing Development Board (HDB) upgraders.

The proportion of purchasers with HDB addresses has declined to 37 percent in the third quarter of 2009, from the recent peak of 56 percent in the first quarter.

Anti-speculative measures have worked

The escalating prices, driven by speculators, are a cause for concern as recent data from the Ministry for Trade and Industry (MTI) shows that Singapore is just fresh out of a recession.

Analysts say removing the IAS and IOL schemes will bring stability to the property market, in line with the country’s economic growth.

“The measures are aimed at stabilising the market and not letting prices runaway from the reality of an economic downturn. Any rise in prices should commensurate with the rate of economic expansion,” says Donald Han, managing director for Cushman & Wakefield Singapore.

Two months later, analysts agree that the government’s anti-speculative measures have worked to some extent.

“The government’s strong stand on the need for anti-speculation, coupled with its prompt and immediate response to the rapidly heating market (IAS removal and land release), is what has brought sanity to the property market by weeding out speculators and cautioning would-be private home owners,” says chief executive officer for PropNex, Mohamed Ismail.

“The effect of the anti-speculation measures is targeted more at the buyers in the non-prime market who typically rely more financing to own a private residential property. The removal of Interest Absorption Scheme and Interest Only Loans also forced these buyers to be more prudent in their purchases as they are no longer allowed to defer their loan repayment. The reassurance of ample supply as provided by the government’s injection of sites into the first half of 2010 confirmed list, under the government land sales programme, has also softened the run-up effect,” says Dr Chua Yang Liang, head of research for Jones Lang LaSalle for Southeast Asia.

Subsales down

According to Jones Lang LaSalle, the overall monthly volume of purchases for October 2009 has declined by 29 percent from 1, 143 units in September to 811 units.

This is the third contraction since August 09 and also the second lowest sales volume achieved for the first ten months of 2009 since January 09 when 108 units were sold.

Jones Lang LaSalle also notes that this measure has resulted in a decrease in subsales – a measure of how much speculation there is in the property market.

“ The recent announcement of measures to curb speculative behaviour seems to have taken effect as seen in the subsales market. Proportion of subsales level has fallen to 7.9 percent in October from the 12 percent recorded in September,” says Dr Chua.

However, analysts say it is too early to tell if some measures, such as the interest-absorption scheme (IAS), should be restored,

“The IAS removal only played a small part of the government measures. But even as such, we do not think it is necessary for IAS restoration within the next one year,” says Mohamed Ismail.

Falling rentals

While property prices were escalating in the third quarter, rentals continued to decline in the same period.

According to the URA, the rental price index for private property has dropped 2.2 percent in the third quarter.

“The rental price index has dropped 20.4 percent to its current third quarter level of 129.3, and its recent decline of 2.2 percent is actually its lowest decline in four quarters,” says Mohamed Ismail.

Analysts note that rentals were declining, as landlords were willing to drop their rents during the recession.

“Rentals for private properties could be explained by the fact that in the bad economy, landlords were willing to lease out their property for lower prices. Given that rental agreements last for an extended period of time, we should see a lag in the recovery of the rental price index behind the more visible recovery of the property price index,” says Mohamed Ismail.

Therefore, the fourth quarter could see rentals going up in tandem with the recovering economy.

2010 and beyond

Going forward, analysts expect sales volume for private homes to ease, as there are fewer mass-market projects in the pipeline plus the government’s measures to cool the property market.

“Transaction volume in the non-landed segment is likely to contract by a further 10 to 20 percent due in part to the seasonal slow down and also the effect from the recent government announcements,” says Dr Chua.

Home prices are also likely to see some level of stabilisation with more moderate increase to more sustainable levels with less volatility.

This is because about 70 percent of the current buyers in recent residential launches choose the normal progress payment while the rest opted for the IAS.

However, analysts warned that the Singapore government could impose more measures to cool the property market should price continue escalating.

“Should housing price growth continue to surge ahead of economic fundamental despite these recent moral persuasion by the government to cool residential demand, further anti-speculative measures with a bigger bite could be introduced such as capital gains tax say for those who flip within a two year period of the first purchase,” says Dr Chua.

In October, the Monetary Authority of Singapore’s (MAS) expressed concern that a speculative bubble could form, prompting them to take possible further measures, on top of the release of land announced recently for mass-market developments.

Although the government has yet to announce such possible measures, prospective homeowners should assess their financial position before taking a plunge in the private property market.

The HDB market outlook

Following public criticism that there was not enough supply of HDB flats in the market, Minister for National Development Mah Bow Tan announced in parliament recently that the HDB will release 10, 000 to 12, 000 new flats every year for the next five years.

By releasing more supply however, the HDB is caught between the devil and the deep blue sea.

While releasing more flats will help quell the public’s frustration with the HDB, such measure will also bring down the value of HDB flats due to its market based pricing approach.

“Although HDB is slated to release a total of 13, 500 Build-To-Order (BTO) flats this year (by the end of 2009), an oversupply would only serve to dampen the asset value of a majority of Singaporeans who are dwelling in HDB flats,” says Mohamed Ismail.

Meanwhile, the HDB resale market will likely witness more transactions this year.

Acording to Propnex, there is a continual supply of resale flats which could potentially see 40, 000 transactions this year alone.

It adds that should the economy recover well, this could lead to greater demand in the HDB resale market due to a a greater number of Singaporeans being able to hold well-paying or stable jobs, or if there is a greater number of permanent residents in the market.

Such news mean Singaporeans should brace themselves for escalating prices in the resale market next year – just at a time when elections are coming.

The latest HDB Price Index (RPI) is now at a record high of 145.2 points – a growth of 3.6 percent over the previous quarter.

About the Author:

Khalil Adis was a former editor for Property Report magazine covering Singapore, Malaysia and Indonesia. During his course of work he has travelled to all three countries to cover their property markets extensively. He has also interviewed politicians like Singapore’s Minister for National Development Mah Bow Tan, Kuala Lumpur’s Mayor Dato’ Ahmad Fuad Ismail and Malaysia’s Energy, Green Technology and Water Minister Datuk Peter Chin. He now writes for Property Report, Property Guru and Temasek Review.

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