Private property market holding up despite economic slowdown

SINGAPORE — Despite a dampened economic outlook, the private property market was in rude health in the second quarter, with the transaction volume of new homes and prices both rising.

Nevertheless, with Singapore’s economic growth set to slow in the second half of the year, analysts were divided on how the chips will fall for the property market — given that the global uncertainty has already seen an influx of foreign investors snapping up homes here in recent months.

Data compiled by real estate agency Huttons showed that between April and last month, about 2,500 new private properties were sold — a year-on-year increase of almost 6 per cent.

The increase could help reverse three straight quarters of decline in the overall transaction volumes — including resale deals — from June last year to March this year, said property experts. The period coincided with the introduction of property cooling measures in July last year.

Earlier, flash estimates by the Urban Redevelopment Authority (URA) indicated that private property in the second quarter rose by 1.3 per cent from the previous quarter, hitting a five-year high.

URA will be releasing the full second quarter data on Friday (July 26).

According to Huttons’ data, a total of about 4,300 new private properties were transacted in the first six months of this year — a 10-per-cent increase compared with the same period last year.

Mr Lee Sze Teck, Huttons Asia head of research, said he expects the buoyant demand to continue into the second half of the year, noting recent successes in condominium launches in the past month.

“If the momentum continues at the same rate, then it could mean a turnaround for the industry for 2019,” said Mr Lee, noting the likelihood of sales in the second half of the year exceeding the 4,848 clocked in the same period last year.

Barring economic shocks, total new sales in 2019 are expected to range between 8,000 and 10,000 units, said Mr Darren Teo, head of research at Edmund Tie & Company (ET&Co). Annual sales averaged 8,400 units a year over the last five years.

However, others including CBRE head of research for Singapore and Southeast Asia Desmond Sim disagreed, pointing to a tepid economy as a reason for lacklustre market demand. CBRE predicts total sales in 2019 to be between 7,000 and 8,000 new units.

FACTORS BEHIND THE UPTICK

On the sales uptick from January to June, the analysts said this could be due to the psychological effect of the property cooling measures wearing off.

The measures, which kicked in from July 6 last year, had increased the additional buyers’ stamp duties for Singaporeans buying residential property, among other changes.

“There is one school of buyers who will wait and see if the prices will drop whenever new measures are introduced,” he said. It typically takes this group around six months before they make a decision to buy property, said Mr Lee, noting how the same phenomenon occurred when the property cooling measures were imposed in 2011.

Mr Nelson Lim, key executive officer of property services company C&H Group, said that with buyers getting used to the idea of higher stamp duties, their first impulse would be to snap up smaller and cheaper shoebox units.

“To some extent, people may be growing more comfortable to buy smaller units in choice developments, which (has been) the most popular category of units sold in the past month,” said Mr Lim.

At the sales launch of One Pearl Bank over the weekend, around 56 per cent and 31 per cent of the units sold were one- and two-bedroom units respectively.

The project sold 160 of its 200 units, or 80 per cent, in the first phase of its launch. One Pearl Bank will have 774 units in total. This works out to around 20.7 per cent of total units booked over the weekend — a “credible performance” for a development the size of One Pearl Bank, said PropNex chief executive officer Ismail Gafoor.

But this is still far behind the levels seen before the cooling measures kicked in last year, he added. Back then, it was “not uncommon for developments to sell 40 per cent of all units at full launch in its opening weekend”, said Mr Ismail.

Nevertheless, PropNex also believes that the 2019 sales numbers will exceed last year’s total of 8,795 transactions. This is because more developers are launching at attractive prices “to lock in the buyers”, he added.

“Today, buyers are generally looking at the value proposition and are more price sensitive. This is why developers have priced their new launches sensitively as well,” said Mr Ismail.

Agreeing, Mr Teo noted that Singapore’s low interest rate environment could drive a recovery for private property demand in the months ahead. Experts said the US is likely to cut its interest rate at the Fed's July meeting, which could also further lower Singapore’s rates too.

INFLUX OF FOREIGN INVESTMENTS

Another factor that is driving buyers’ demand comes from overseas, the analysts said. Foreign buyers are increasingly seeing Singapore as a “safe haven” to park their monies in assets such as property as part of a defensive investing stance.

Mr Lee said there was around 50 per cent more foreign buyers of Singapore property from April to June compared with the period from January to March this year.

OrangeTee & Tie head of research and consultancy Christine Sun said there was “firm buying interest from mainland China investors” over the past few months, due to the United States-China trade war and Hong Kong’s social and political unrest, for example.

“Historically, (Singapore’s) property prices have been rising steadily through the decades, weathering through some of the toughest economic challenges and regulatory curbs,” said Ms Sun.

S’PORE BUYERS COULD BE MORE CAUTIOUS

However, some analysts pointed to an upcoming glut — an expected 44,000 new dwellings set to hit the market over the next few years — which had led the Ministry for National Development (MND) to reduce the supply of new private homes through government land sales in the second half of 2019.

“We are still not in an uber healthy situation where we see long queues waiting to snap up units at condo launches,” said Mr Sim.

Currently, there are about 23,400 existing units which are left vacant, based on public data from January to March.

Most of the analysts interviewed felt that the economic uncertainty would still cause prospective private home buyers to tighten their purse strings.

In May, the Ministry of Trade and Industry (MTI) reduced its initial economic growth forecast for 2019 from a range of 1.5 to 3.5 per cent to a range of 1.5 to 2.5 per cent. The ministry is expected to downgrade its forecast again next month.

Earlier this month, MTI’s advance estimates showed that Singapore’s economy grew by a meager 0.1 per cent year-on-year in the second quarter of 2019, missing expectations and slowing from the previous quarter as the manufacturing sector weakened further. The economy grew 1.1 per cent year-on-year in the first quarter this year.

Nevertheless, Deputy Prime Minister Heng Swee Keat has said that Singapore is not expecting a full-year recession at this point.

Meanwhile, the uptick in sales figures in the second quarter of this year was unlikely to bring much cheer to developers, the analysts said. A combination of competitive pricing and rising land costs have cut into their profit margins, they noted.

From 2016 to 2018, land prices surged by around 50 per cent while development charge rates — which developers need to pay in order to apply for planning permissions — also increased by around 40 per cent in the same time period, said Mr Lee.

About two weeks ago, Real Estate Developers' Association of Singapore president Chia Ngiang Hong pointed out that the demand for new homes is likely to remain muted given the state of the economy, while the “sizable” property cooling measures continued to be “a restraining factor for both foreign buyers and Singaporeans”.

“The current situation of high supply and subdued demand is indeed very challenging,” said Mr Chia.

Source: Today On Line 23rd July 2019

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Private property market holding up despite economic slowdown

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