Friday, August 1, 2014

What gives, Singapore property prices?


So what does the experts think about the current status with the Singapore property prices and when is the right time for our government to consider winding back some of the existing cooling measures? 

These are our main take-away from the round-table session organized by The Strait Times late last month, which was reported in the ST today. The panellists included Mr Donald Han (managing director of property consultancy Chestertons), Mr Song Seng Wun (regional economist at CIMB Bank), Mr Eric Cheng (group chief executive of real estate agency ECG Holdings) and Mr Li Jun (general manager of property developer Qingjian Realty):    
 
  1. The market has seen a slow but sure decrease in pricing since 4Q'2013. While prices were expected to fall between 5 - 8% at the beginning of 2014, we will probably see prices falling 8 - 10% for the rest of the year. 
  1. Barring any external shocks that may accelerate price decline, prices may fall 10 to 15% by the end of 2015. 
  1. The current property downturn is likely to be different from previous ones, such as the Asian financial crisis and global financial crisis because
 
    • Unlike previous times, Singapore currently still enjoy positive economic growth, very strong employment and very high liquidity. Given such, strong buying interests still remain as long as prices from developer is "right". So those 30% (global financial crisis) or 60% (Asian financial crisis) drop are unlikely to happen this time around.
 
    • Even if a rude shock were to happen, we can expect policy response to be much faster this time around. So any downturn or recession will be better cushioned and compressed.
 
    • Fundamentally, our banks are also much stronger and amongst the most liquid in the world.
 
    • Buyers are also more liquid and just waiting for the right opportunity to enter the market. Developers are also equally liquid these days. So we hardly see any distressed sales, both by home owners and developers, unlike during the global financial crisis. 
  1. A 20% drop in home prices is probably the psychological threshold that policymaker will come in to ease off on cooling measures. If you purchase a property 3 to 4 years ago, your LTV (loan-to value) is about 80%. So banks will start asking for top-ups if home values drop 20%.  
  1. As it stands, only a sharp drop in property prices within a short period, or a groundswell of unhappiness from a large number of home owners, could prompt the government to act faster to relax on cooling measures. 
  1. Home buyers are advised to wait before taking the plunge as prices are likely to get more competitive.
 
So we have heard from the experts. The magical number is still 20.
 
After reading the ST article today, here are some thoughts from us "non experts" in line with the round-table discussion for anyone that wants our 2-cents:   
 
1)      Although the Singapore economy remains somewhat positive, subtle signs of a slow-down are beginning to show - GDP is shrinking, economic growth rate forecasts are being cut and new job creation rate has hit new lows.  
 
2)      There have been increasing "sound bites" from banks about NPL (non-performing loans) on the home mortgage front. Despite the number being still low and "manageable" by the banks' standards, this is certainly a cause for at least some concerns.  
 
3)      In addition, interest rates are moving up slowly but surely. This will put further pressure on existing home owners with significant amount of mortgages. 
 
4)      The current geopolitical situation around the world are not giving us much comfort either. Any of the "hotspots" may explode overnight and causes dire effects to global financial markets. While Singapore may be more resilient to deal with a financial crisis as compared to 1997 or 2007, there is probably little we can do to mitigate the damage if the rest of the financial world goes into a tail-spin. 
 
5)      If our memories served us right, things started unravelling fairly quickly during 1999 and 2007. The property markets were down in a matter of weeks and at astonishing pace. All the buyers simply disappeared! So any counter-actions to try and prop/revive the market at that point in time were more or less futile.  
 
6)      While a price drop of 20% in property prices tomorrow may benefit certain groups of people (the "cash rich" and "risk taker" as per our previous post), it may led to rather serious repercussions and even negative equity for some. Despite all the talks about high level of liquidity out there, the wife and I believe (rightly or wrongly) that this only resides in the hands of a small group of potential buyers. There are many people out there that are seeking to "upgrade" and are primarily dependent on the money that they are able to generate from selling their existing homes to do so. So a sudden and severe price drop may not necessarily benefit this group of buyers. 
 
7)      So what is the "right" time to enter the property market or "upgrade"? Our mantra has always been that one can almost never catch the highest (for sellers) or lowest (for buyers) price point. At least we have never managed to do over the past 5 or 6 properties that we have bought and sold. Our "right" time is a combination of "gut feel", comfort level (especially if we are going to stay in it) and more importantly, affordability (are we stretching ourselves too thin in terms of the cash component and can we reasonably afford the mortgage payment over the course of the next 5 years?). And as long as you possess the "holding power" and given that the property market comes and goes in cycles, you wouldn't go too wrong even if you enter the market now. This approach has served us rather well thus far (*fingers crossed*). 
 
8)      So where do we see the market in 6 months' time? We have often been off the mark when comes to this question. But sticking our necks out (again), the wife and I reckon that private property prices will probably fall by some 10% by the end of the year. This is assuming that everything (government policies, global and local economic/political situation etc.) remains status quo.  
 

Thursday, July 31, 2014

20's the magic number when comes to easing of cooling measures?


According to an internet survey conducted by our Lianhe Zaobao, 70% of the 1,262 respondents said that it is still not time for our government to ease off on property cooling measures. 40% of them even go as far as saying that such considerations should only be made if property prices fall by at least another 20%. 

In addition, 18% of the respondents felt that more cooling measures should be imposed to curb rising private home prices, as current measures seemed to have insignificant effects. 

The Lianhe Zaobao survey seemed to suggest that a 20% price drop is the "physiological barrier" for most respondents when comes to easing of current cooling measures. Conversely, only 27% of those who responded felt that the existing measures should be relaxed now. 
 

The wife and I wonder if the survey conducted is really an accurate reflection of the current sentiments on the ground. To be fair, 1,200+ respondents is only a small proportion of those who read Lianhe Zaobao (even for their online version). The figure is even smaller if you consider the number of existing/potential participants in the private home market. 

But let us assume that the "20% price drop" is really what home buyers want before they deem it necessary for the government to ease off on the cooling measures. We wonder if those respondents that made this call have considered the repercussions of such a 20% drop carefully enough. One might ask at this juncture: if private home prices will to drop by 20%, surely this is a good thing especially for those who are waiting to enter the market. So what possible repercussions are there? 

The wife and I believe that those who are waiting to enter the private home market largely fall under 3 broad groups: 

The "Cash Rich"
They can jolly well enter the market yesterday already if they choose to, but are remaining on the sideline and waiting for the market to hit their "ideal" price before entering. You be surprised how many of our HDB dwellers actually belong to this group. 

The "Risk Taker"
Those who have sold their property earlier or are selling their existing property now (while the market is still lukewarm), and betting that prices will fall drastically in the near future so that they can re-enter the market again. Meantime, they will go on rental or move back to live with their parents. 

The "Upgraders" 
Those who want to move from HDB to private or a small private to a bigger private apartment, but need to sell their existing homes before they have enough cash to make the switch.

For the "Cash Rich" and "Risk Taker", they will probably want cooling measures to stay till the property market crashes, if possible. The bigger the price drop, the better it is for them as it increases the potential upside in value of the property that they eventually buy. 

But for the "Upgraders", a significant price drop in private home prices may not necessarily be a blessing. History do indicate that when prices of new private home fall significantly, it will bound to have a "knock on" effect on private resale and eventually HDB resale prices. Although the degree of price drop in the three housing sectors may not be proportional, the price gap that the "Upgrader" group needs to bridge may still remain too wide for them to upgrade. And to make things worse, they now find themselves in a double whammy whereby their existing properties have fallen in value and also become more difficult to sell in a bear market.

So depending on which group of potential market entrant you belong to, a 20% drop in private home prices may not spell tragedy for developers alone...
 
 

 

Wednesday, July 30, 2014

Now this is what we call a marketing campaign!


Maybe we have been living in a well all these while but the wife and I are rather impressed by the marketing efforts from the folks who are developing/marketing Quartermile in Edinburgh.

Our opinion with this one may be a tad vested but how often do you find a developer who is actively engaging potential buyers with

A stunning website (http://www.qmile.com/)



On Facebook



And even a monthly newsletter on the latest happenings at the development?


Some may deem us naïve but such proactive engagements do help inject confidence to both existing owners and potential buyers about the development. Maybe something for our local developers to think about?



Tuesday, July 29, 2014

Trouble on both (Completed & Uncompleted) fronts!


Wary buyers shun completed homes
Threat of an oversupply of private homes and a poor rental market are deterring home-seekers from buying completed homes. This is especially for homes in the city centre.

the upscale Districts 9, 10 and 11 account for the bulk of unsold units at completed developments across Singapore.

Private home vacancy rates have reached their highest point since 2006, according to URA figures.

Developers appear to be responding by cutting prices further to boost sales in order to avoid penalties for failing to sell all their units by a dateline. Fines are imposed if a builder fails to sell all their apartments in a project within 2 years of completion, under the Qualifying Certificate (QC) rules.

There were 1,412 completed but unsold homes at the end of June - 1,259 condominium units and private apartments, and 153 landed houses - according to URA last Friday.

The city centre accounted for the bulk of that - about 894 units, or 63.3% - while the city fringe had about 414 unsold units, or 29.3% of the total. said OrangeTee research head Christine Li.

Both areas far outstripped the suburbs, where there were only 104 unsold completed units, or 7.4% of the total.

Ms Li pointed out that the prices of completed homes in the city centre slid 1.9% in April through June from the previous three months, the largest quarterly drop since 2Q'2009.

"This could suggest that some developers have started to become skittish and have started to cut prices in order to move units to avoid QC fines."

Still, buyers will likely stay on the sidelines partly due to rising vacancy rates and a possible supply overhang in the near future.

The islandwide vacancy rate for all private homes, including landed housing, climbed from 6.6% in the first quarter of this year to 7.1% in the second - the highest level since the 7.4% recorded in 1Q'2006.

City centre homes were the worse hit in the second quarter of this year, with a vacancy rate of 8.5%.

Consultants said that a bumper crop of completed homes could weaken the leasing market even further.

JLL Singapore research director Ong Teck Hui pointed out that there were 9,016 private homes completed in the first 6 months of this year, compared to 13,150 units throughout the whole of last year and 10,329 units over 2012.
 


Steady increase in number of unsold units in launched but uncompleted projects
Many private developments have been launched but remain unloved by buyers as home loan curbs continue to suppress demand.

The number of launched but unsold homes as at the end of June was higher than at  the same time the previous year, according to official data last week.

There has been a "stead increase in unsold units in launched private residential projects" since the middle of last year, when tough restrictions were imposed under the TDSR framework, JLL Singapore research director Ong Teck Hui said.

Mr Ong noted that there were around 5,200 unsold units in launched private residential projects, as at the end of June last year. However, that jumped about 20% to reach 6,300 units, as at the end of last month, he said.

The three projects with the highest number of launched but unsold units were all in suburbs - The Santorini (Tampines), Hillview Peak (Bukit Batok) and The Skywoods (UPPPPPER Bukit Timah).
 
Info source: ST

So completed homes cannot sell. Uncompleted homes also finding it a tough sell. But developers are mostly still unwilling to drop prices because of possible "knock on" effects and the high land costs that they had paid over the past 2 years. Looks like we have ourselves a good 'o fashion "Mexican stand-off " - now to see who (buyer or seller) blinks first...

 

Hot off CNA: Resale prices down 1% on-month in June 2014!

 

Resale prices of private homes fell in June after inching up in May, according to Singapore Residential Price Index (SRPI) estimates released on Tuesday (July 29).
 
The SRPI, compiled by the National University of Singapore’s Institute of Real Estate Studies, showed overall prices decreased by 1 per cent in June from the previous month. In May, prices rose 0.4% from April.
 
 
Prices of homes in the central region led the decline, with a 1.5% fall in June from the previous month. Prices in the non-central areas dipped 0.4%.
 
The figures exclude prices for small units with a floor area of 506sqft and below, which also fell 0.4% in June from May, the SPRI data showed.
 

Source: CNA