New heights for Singapore property
By Megawati Wijaya
SINGAPORE - A bubbling property market represents the latest
indication that Singapore is recovering from its global
crisis-induced economic doldrums.
Surging demand for residential units has in recent months seen
potential buyers queue for hours before new house openings and
anecdotally many have left blank checks with their property agents
to fill out to secure their spots in new projects.
When the global economy crashed last year, Singapore was among
Asia's hardest hit. As one of Asia's most open and export-dependent
economies, the island state was the region's first to slip into
recession last year after recording two consecutive quarters of
economic contraction. Slowing growth took an especially heavy toll
on the island state's property market, which was growing briskly in
the run-up to the crisis.
Local property consultancy company DTZ said that the number of
property transactions it handled last year was down about 35% on
the number of units sold in 2007. Prices of non-landed freehold
private homes in the island state's prime districts fell by 21.6%
year on year in 2008, driven down by a 14% quarter-on-quarter
contraction in the fourth quarter.
Prices of government-built Housing Development Board (HDB) flats
also suffered, with many apartments sold at or below market
valuation.
Bearish sentiment, unsold inventories and the potential for buyer
default risk had caused industry analysts earlier this year to
predict that high-end property prices could decline by between
15-20% in 2009. For mid-market properties, the consensus forecast
was a 5-10% decline. Singaporean buyers have defied those downcast
expectations, with market sentiment turning positive in the second
quarter judging by the surprisingly high number of deals
closed.
Private sector developers in July launched an all-time high of
2,878 new flats and an astounding 2,767 of those units were sold
out within a month. That sales figure smashed by 52% the record of
1,825 units sold set the previous month. Over 43% of the
transactions that took place in July fell under the middle- to
high-end tier, with prices anywhere between S$1,000 (US$715) and
S$1,999 per square foot depending on location.
New luxury developments in Singapore's reclaimed areas on the
offshore island of Sentosa, where prices average S$2,000-S$3,500
per square foot, also reported steady sales. Significantly the rush
has also driven up the prices of government-built HDB flats. In the
second quarter, more than 10,000 HDB resale flats changed hands, up
from 6,446 units in the first quarter and 7,763 units in the same
quarter of last year.
That figure climbed higher to 11,649 units sold in the third
quarter, representing the highest such level in five years.
Mass-market leasehold projects outside of prime areas have returned
to 2007 price levels, according to Chua Chor Hoon, head of
Southeast Asia research at DTZ Debenham Tie Leung, a property
consultancy. The average price of a leasehold non-landed resale
home rose to S$610 per square foot in the third quarter of this
year, a mere S$5 less than the 2007 peak level. This, he notes,
reverses a more than 20% fall in 2008.
For resale HDB flats, price increases are calculated by the level
of cash-over-valuation (COV) buyers pay sellers. The COV median in
the third quarter quadrupled to S$12,000 per unit compared to the
going rates in the second quarter, according to data released by
the Housing Development Board (HDB). Property agents say many
sellers now ask for a minimum of 30,000 COV per unit, and in some
cases, it can go as high as $70,000. Property agency PropNex chief
executive Mohamed Ismail, believes that resale HDB prices are on
course to rise 2%-3% over the fourth quarter.
Singapore's rebound comes as regulators in other recovering
regional markets bid to rein in property lending due to concerns
that rising prices could cause more bad debts. The recovery has
also rekindled pre-crisis complaints about the chronic shortage and
rising cost of government-built flats. In land-scarce Singapore
there is always pent-up demand for new housing, including from
newly married couples looking to purchase their first home.
But comparatively rich foreign buyers are now viewed as the main
drivers behind the rising prices of both private homes and HDB
flats. Property agency ERA's statistics show that foreigners with
permanent resident status (PRS) accounted for 40% of their recent
buyers, up from 20% three years ago.
To cool the market, HDB announced it would release 7,000 new flats
onto the market between October and December. It also said it would
offer over the next two months 4,000 new flats under a
build-to-order (BTO) scheme, on top of the 1,200 new BTO flats
which were already in the construction pipeline. Private home sales
rates came off their recent highs in September. But many analysts
are skeptical the moves will stabilize the market due to doubts
that buyers will be willing to wait the three year construction
time and because the BTO scheme is only available to Singapore
citizens.
Popular public housing
HDB flats, in which about 84% of the population resides, have
long been the cheapest housing option in Singapore. Getting an HDB
flat of one's choice, however, is not easy because of a tedious
balloting process. Flats in popular locations are usually
oversubscribed by over 10 times and that high demand is expected to
grow due to the inelasticity of supply and a growing population.
One local newspaper recently featured a married couple who still
live separately in their respective parents' homes because of their
inability to secure a HDB flat of their own.
Resale flats' higher prices, driven up by foreign buyers, have put
them out of reach for your average Singaporean. Many have also
blamed the HDB for raising the valuation of its flats at the end of
last year as a reason for the recent price spike. An online
petition launched in September calling on the government to
intervene in the market by lowering HDB valuations and building
more affordable flats quickly surpassed its target of 1,000
signatures.
Parliamentarian Lim Wee Kiak raised the issue of affordable housing
in September by advocating a new mechanism to provide bridging
loans to young couples looking to buy their first flat. In
response, National Development Minister Mah Bow Tan said that HDB
flats remain affordable to most Singaporeans, with first-time
households using on average less than 30% of their household income
to service their housing loans.
However a study published
last year by National University of Singapore economists Tilak
Abeysinghe and Gu Jiaying found that the purchasing power of
people's lifetime earnings was lower in 2007 than it was in 1990
when tracked against the prices of HDB resale
flats. The study found that the prices of
HDB resale flats were less affordable over the period - and notably
before the more recent surge in prices.
What Mah apparently overlooked was
the impact of longer mortgage loan periods. In the 1980s, maximum
loan tenures were set at 20 years. It has since been revised upward
and this year 56% of HDB flat buyers opted for the maximum 30-year
tenure. Analysts say a higher cost of living means that your
average Singaporean must allocate a higher percentage of their
monthly income for housing than was required 20 years ago. It also
means that Singaporeans need to work longer than before to pay off
their housing loans, they say.
Minister Mah also said that the HDB will continue to supply new
housing units but "we cannot be building new flats to cater to
every last person who wants a new flat ... because if you do that,
then obviously you are over-building". He quoted HDB data which
states that "eight in 10 first-timers could get a flat on their
first try if they were not choosy; the success rate was 96% for the
second try". HDB has also stepped up efforts to
provide smaller housing units for older people who wish to
downgrade in size and purchase back flats from the aged who have
lost their previous sources of income.
Since it was first established in 1960, HDB was designed to provide
affordable homes to Singaporeans in a push towards economic
modernization. The state agency was so successful in moving people
out of slums and into neat storied flats that last year it won the
United Nations Public Service Award, in recognition of its drive to
raise public housing standards.
HDB does not intervene directly by fixing prices of its resale
flats, but it does influence market conditions through its control
over new supply, said Wong Tai Chee, associate professor in urban
studies at the Nanyang Technological University and co-author of
the paper "A Roof Over Every Head, Singapore's Housing Policy
between State Monopoly and Privatization".
He cited an example of when the government cut prices by as much as
S$40,000 per unit over eight years ago in newly opened remote areas
of Punggol and Sengkang. Cash-strapped buyers were attracted by the
price cuts and the measure helped to clear a temporary oversupply
on the market.
During the 1996 property boom, the government imposed a capital
gains tax on profits made from selling properties within three
years of purchase. The rule continued until 2001 when it was
abolished to spark more property transactions during an economic
downtrend. The government could eventually decide to readopt such
measures to deter current property speculation, some analysts
reckon.
Minister of Finance Tharman Shanmugaratnam recently said the
government does not plan to impose capital gains taxes on property
as part of new changes to the income tax code, which come into
force in January next year.
In a move many saw as a bid to tramp down speculation, the
government last month barred certain low cost loans for housing
projects. It also recently banned developers from absorbing
interest payments for projects that were still under construction.
But there are few indications yet that demand or prices are set to
slow for HDB housing.
Megawati Wijaya is a Singapore-based journalist. She may be
contacted at [email protected]
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