Hey, my reader! It’s been a while since my last post.
How’s the Singapore Property Market now in 2021? AND Are Property Cooling Measures coming? If yes, what?
In the video below (if you’re a visual person), and the following article, I share my thoughts on the 2 hottest topics on the lips and minds of property seekers in Singapore today.
Follow me as I share my own personal thoughts, referencing relevant Singapore news – both property and non-property, and hopefully give you better clarity on the current situation of the Singapore Property Market.
Here are some questions which you can find answers to by the end of this article:
1. What is causing the uptrend in property prices since 3Q2020?
2. As buyers should we be afraid of the potential Cooling Measures?
3. Which sector is likely to be the target of government intervention?
Further along, I also give my own take on the possible Cooling Measure and explain how I reached that conclusion.
Le’s dive straight in with a quick update on the current state of the Singapore Property Market to ensure we’re on the same wavelength.
The Singapore Property Market in Q1-Q2 2021
2. Similarly for HDB flats: HDB resale prices climb for 4th consecutive quarter in Q1.
3. Then, very recently, because of the spike in India’s Covid-19 cases, S’pore bars long-term pass holders and short-term visitors from India, Bangladesh, Nepal, Pakistan, and Sri Lanka.
4. This results in likely further delays in housing projects.
What does this mean?
Fundamentally housing prices are determined by Demand and Supply.
Just look at COE prices for cars: COE prices surge ahead of another supply cut; spike is biggest in over 10 years.
So here’s what I think: Yes, Singapore has handled the Covid-19 crisis well… Yes, funds are flowing into our country… Yes, many people are flush with cash from stock market gains… Yes, our projected economic growth for 2021 is more than 6%…
BUT, the current uptick in prices & volume is really down to the fundamentals.
In the next section, I’ll translate the above more macro-level factors into real impacts on the ground.
The Singapore Property Market: What’s actually happening on the ground?
1. About 43,000 households are affected by BTO delays by up to 6 to 9 months, stated in an article on 7 Apr 2021. Scariest part? We don’t know when these delays will stop. Back in Jul-20, there was a similar article on delays.
2. These are real households who need a roof above their heads. I don’t have the statistics, but it’s probably reasonable to have a number of applicants who canceled their BTO plans. There were 900 of such buyers in 2018. Given that it was a relatively trouble-free year then, I wouldn’t be surprised to know of numbers exceeding 2,000 for 2020 (more than double 2018’s figure).
3. These buyers will then add to A) new buyers who planned to BTO but are no longer considering it due to the uncertain wait B) Newly minted citizens or PR who have seen the attractiveness of Singapore and are now looking to settle down long term. C) Those who needed to sell their private property and downgrade during the crisis.
What do the figures show?
This demand has led to record volumes, the highest in 8 years. The year 2012 was the last high before the market started to downtrend in 2013.
On the price side, average pricing, especially for mature estates (orange line), have significantly passed the last highs of 2013.
As more time passes, that gap is likely to grow for the non-mature regions as well.
Now the above 2 graphs, you may not have seen before as they are less accessible to the public.
What you may probably have seen, however, is the HDB resale index.
This can be found on the HDB website.
What do you notice from this latest index?
Well, it hasn’t exceeded the 2013 high…
That’s why I’ve always found indexes to be slightly misleading.
Because if you simply rely on the index, as the below graph shows (released by HDB), you might think that prices have yet to surpass the 2013 peak.
Not because it’s inaccurate, but for a data set that is only updated quarterly, it may not be so timely. Or in other words, it is unlikely to represent the actual state of affairs.
Secondly, it’s also benchmarked against an ‘index’, whereas when you use a graph based on average pricing, it becomes much clearer.
Not that indexes aren’t accurate, you just got to know how to interpret them correctly.
How Does Rising Resale Volumes and Prices affect the rest of the Property Market?
Next, you have the sellers of these HDB flats. For those in their 30s, with their first pot of gold from the sale, what is a natural follow-up step?
With ads like this everywhere as teasers… haha.
For the ones who are more financially able, not just 1, but 2 of such private properties. 1 for own stay, and the other for investment.
As a result, the market’s upward trajectory flows to the private market.
Where… the same Demand and Supply effects also apply, and new completions are also delayed due to the manpower crunch.
At the same time, the influx of buying activity have seen the unsold supply of developers falling steadily from its peak of 37,799 units in Q1 2019 to 24,341 units in Q4 2020. A continuation of this rate will see inventory levels fall below 20,000 by the 2nd half of 2021.
Developers need land to build more inventory for sale, and therefore the En Bloc market might be rekindled.
In conclusion, if you follow, I think the key reason for the high market activity, is a supply crunch.
Don’t get me wrong, I’m not saying that the demand factors aren’t strong.
Good market sentiment, a recovering economy, a positive expectation of foreign influx (once borders finally reopen), and of course the low-interest rates are all good reasons for buyers to want to enter the property market.
What better asset to hold in uncertain times? Real Estate, while not giving as high returns as other forms of investments, is undeniable still a very attractive diversification asset.
Which leads me back to the main reason for writing this article.
Are Property Cooling Measures coming? And if so, what measure?
First, a look back on the existing key measures.
1. Buyer Stamp Duty & Additional Buyer’s Stamp Duty: an outright tax on the property purchase price.
2. Loan To Value: The amount of loan you can take as a percentage of the property value.
3. Total Debt Servicing Ratio (or Mortgage Servicing Ratio for HDBs & ECs): sets a limit on the percentage of your monthly income you can use for debt servicing.
4. Seller’s Stamp Duty: controls ‘flipping’, as sellers will get taxed a percentage of the sales price for the first 3 years following purchase.
When we think about cooling measures, we always first think about a tweak of the existing measures.
That’s more than fair, as those who recall that night of July 2018 where the most recent major tweaks were implemented – LTV from 80% to 75%, and ABSD increased across the board.
It was a night for the history books as those involved would be able to recall the long snaking queues throughout the night…
But the most recent cooling measure was actually implemented in September 2020, with URA clamping down on the developer’s practice of the re-issuance of options, something which inflated sales figures and at the same time provides buyers with more time to arrange for the purchase.
Who remembers that?
Finally, here’s my view on the potential Cooling Measure
Since the current market bull-run is largely supply-based, supply isn’t something that can change overnight.
Even if the government suddenly releases an avalanche of new land sales… especially with the ongoing pandemic.
Private property prices, if you really drill down to the details, aren’t really going off the rails despite what you read in the media… and are in fact in many areas still less than 1H2018.
Take for example Affinity at Serangoon, a project that was launched in June 2018, before the cooling measures.
The historical high price achieved (S$1,797 PSF) was one before the cooling measures!
Understand that the private property market is after all one where the buyers tend to be more financially secure and savvy.
Realistically, with the safety nets built-in with the existing cooling measures, it’s difficult to over-leverage or go beyond one’s means to purchase property even if you wanted to.
Want to take a higher loan amount – there’s the LTV restriction.
Want to pay a higher debt repayment – there’s TDSR.
There are some exceptions which I’ve done creative structuring for hyper-aggressive clients, but definitely FAR FAR from the norms…
Thus, a more reasonable course of action that I think impacts a larger part of society, is to control the fast-rising HDB prices.
Because recently, Cash over valuation (COV), is making a comeback.
If you’re not familiar with the HDB process, I’ll share with you that HDB controls the valuation as it’s done through their internal system.
This is unlike the private property markets that are driven by banks and private valuer firms.
In Conclusion, here’s my prediction on the Cooling Measure…
That it would be one targeted at the HDB market, with a possibility of restricting or setting a cap on COV being most likely.
By doing so, it allows buyers to still buy their desired property but stops prices from increasing further.
Hint hint – there were already some internet buzz previously on capping ‘million-dollar flats’.
Hope you enjoyed this read and have a better understanding on the Singapore Property Market!
Do you agree with my thought process?
What about my cooling measure prediction?
Leave a comment below and let me know!
P.S. Remember I mentioned earlier that there are still private property buys which are ‘good value’?
I have separately identified some areas and projects which present the best investment value for buyers today.
If you want to know more about that, contact me and we can discuss further. 🙂
Cheers, and thank you for reading!