In the midst of encouraging sales for new launches in recent weeks, URA announced that prices fell across the private residential, commercial and resale public housing segments in the first quarter, extending the drop to 14 quarters in a row confirming the flash estimates released in early April. This is the longest losing streak in 13 years but the pace of decline is slowing indication that the bottom may be near. I said may because we’re not out of the woods yet. MAS announced in its latest monetary statement that “the outlook for the global economy has improved slightly since the October 2016 MPS, although downside risks remain“.
Overall private home values slipped by 0.4 per cent compared to Q4 led by landed property. The drop in the index was slightly smaller than the 0.5% decline last quarter. With brisk sales and rising launch prices recently the bottom may be in sight. Seaside Residences attracted a huge pre-launch crowd and sold more than 70% of units during the first weekend of launch. Sentiment is certainly on the rise, for new launches at least. Resale market is still languishing. This is a dichotomy that should resolve itself soon.
Other projects coming on-stream are the Clement Canopy, Grandeur Park Residences in Tanah Merah, Artra in Redhill and Park Place Residences At PLQ in Paya Lebar. Last month, developers sold 1,780 new units, excluding executive condos, up about 82 per cent from the 979 in February – the highest monthly sales since June 2013. As at March 31, The Clement Canopy had sold about 53 per cent of units, Grandeur Park Residences about 67 per cent, and Park Place Residences At PLQ nearly 51 per cent.
It will be clear soon how prices will trend this year.
Amidst mixed global signals, Singapore’s property prices looks mired in the doldrums as confirmed by today’s Urban Redevelopment Authority’s (URA) flash estimate. Although there were green shoots (if I may call it) in recent launches that attracted large crowds, we can see from the figures released that prices in general except for a slight uptick in non-landed properties outside the central region.
The property price index (PPI) declined 0.5% from 137.2 points in the 4th Quarter 2016 to 136.5 points in the 1st Quarter 2017. The drop was the same as in the 4Q 2016 which is a troubling statistics given the <a href=”http://maybelleproperty.com/news-of-property-curbs-easing-brought-excitement-in-residential-property-sector/”>slight easing of cooling measures</a> last month.
Prices of non-landed private residential properties decreased by 0.2% in the Core Central Region (CCR), compared to the 0.1% previous increase.
Prices in the Rest of Central Region (RCR) was still the same, after registering a decrease of 2% in the previous quarter while prices in Outside Central Region (OCR) were up by 0.1%, after registering a 0.6% decline in the previous quarter.
Of more concern is the larger drop in prices of landed residential properties. These dropped 2.8% compared to the 0.8% increase in the previous quarter.
The flash estimates are composed from transaction prices given in contracts submitted for stamp duty payment, together with data on units sold by developers up to mid-Mar 2017. URA informed that the statistics will be updated after 4 weeks when they release the full real estate statistics for 1st Quarter 2017.
URA said, “Past data have shown that the difference between the quarterly price changes indicated by the flash estimate and the actual price changes could be significant when the change is small.“
Do be advised that these are just flash estimates. Although the methodology of calculation has been revised and improved 2 years ago, figures can change when the full report is released.
After many recent comments from the government that the raft of property cooling measures introduced since 2009 won’t be lifted anytime soon, yesterday’s sudden announcement of some tweaking caught many in the property industry by surprise. Even though it was a very limited and targeted tweak it is indeed welcome news given the tough talk from the ministers in public and in parliament in recent months.
Property stocks surged to its highest in almost 2 years even though the impact on property sales would be muted at best. The consensus out there is that the government is at least responding to feedback however limited it might seem. Which is a hugely positive sign as evidenced by the huge rise in property stocks.
The main cooling measures that had been keeping prices and sales volume in check like the Additional Buyer’s Stamp Duty (ABSD) and the Loan-to-Value (LTV) limit remains unchanged. There are only slight modifications to the Seller’s Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR).
Seller’s Stamp Duty (SSD) Reduced
SSD was introduced 6 years ago to prevent rampant flipping of residential properties. It is payable on all residential properties and land that are bought on or after 20 Feb 2010 and sold within 4 years. No SSD is charged if you hold the property for more than 4 years as this period deems you to be a genuine home buyer for own stay.
The SSD will now apply for only three years. The SSD rate will also be cut by four percentage points. Home owners selling within one year will pay 12 per cent instead of 16 per cent, moving down to 4 per cent instead of 8 per cent for sales by the third year. This provides more options and flexibility when an urgent sale of the property can’t be avoided due to unforeseen circumstances or economic hardship.
For the full details of SSD please refer to the IRAS site here.
Total Debt Servicing Ratio (TDSR) Relaxed
TDSR was introduced in 2013 to prevent home buyers from over-extending themselves. Total debt obligations cannot exceed 60% of total income.
From today, if a home owner’s total outstanding loans are 50 per cent or below of his property’s value, the TDSR will no longer apply. Some retirees have given feedback that because of the TDSR they are unable to borrow against their properties to obtain more cash, according to the official release. In these cases any refinancing should not be more than 50% of the property value, otherwise TDSR will kick in.
The joint press release by the Ministry of Finance, Ministry of National Development and Monetary Authority of Singapore yesterday said:
“Transaction volumes in the private residential property market remain healthy. There is firm demand for private housing, in part because of current low interest rates and continued income growth. While the growth in outstanding housing loans has moderated, it is prudent for households to further build up their financial buffers to protect against future interest rate increases or any losses in income. The Government is therefore retaining the current ABSD rates and loan-to-value limits.”
Property prices in Singapore soared by over 60 percent from 2009 to 2013, thanks to record low global interest rates and quantitative easing in developed countries following the Global Financial Crisis.
With the various property cooling measures rolled out by the Singapore government, property prices here have seen a drop of around 11 percent from its peak in Q3 2013 through end-2016. The occupancy rate for residential units also fell from 95 percent in 2009 to 90.8 percent in 2016. “The measures that have been taken have — with each passing month and quarter I think we can say with a little more confidence — made a fair amount of progress towards stabilising the market,” said Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), at the UBS Wealth Insights conference on Monday (16 January).
In the late 1990s, during the Asian Financial Crisis, Singapore saw its property bubble burst and saw its private home prices only return to their 1996 peak level in 2009.
“(Policymakers) are very conscious, deeply conscious, that we don’t go back to the situation that we had before, because a bubble is an extremely difficult thing to deflate gently. I think we’ve been very lucky. We don’t want to go back to that situation. It’s a very careful balance. There are many mixed signals,” Menon said.
2017 brings some exciting new projects to home buyers.
- Siglap Road
Look out for an upcoming 99-year leasehold residential site along Siglap Road that was awarded to a consortium led by Frasers Centrepoint in January 2016. Siglap Road is a much sought after residential area with amenities such as the future Siglap MRT station, shopping malls and schools.
- New Upper Changi Road
In February 2016, property developer Chip Eng Seng won the tender for this 2.4ha site along New Upper Changi Road. This 99-year leasehold site is located near Tanah Merah MRT Station, Changi Business Park and the Singapore University of Technology and Design.
- Clementi Avenue 1
Expected to launch in the first quarter of 2017, the Clement Canopy is a 505-unit condominium along Clementi Avenue 1 and has close proximity to the National University of Singapore (NUS) and Jurong Lake District. UOL owns a 50 percent stake in this condominium project.
- Alexandra View
Tang City Holdings won the bid for this 0.8ha site in Alexandra View in November 2015 that is strategically located next to Redhill MRT station.
- Bukit Batok West Avenue 6
Top bidder Qingjian Realty was awarded this 1.5ha site at Bukit Batok West Avenue 6 earlier this year, making this property the Chinese developer’s first mixed-use development in Singapore.
- Martin Place
This 99-year leasehold site at Martin Place in River Valley was awarded to GuocoLand in the middle of this year and is conveniently located near the future Great World MRT station and other residential projects such as Martin Place Residences, Rivergate and Martin 38.
- Fernvale Road
Yet another 99-year leasehold site located in Sengkang was awarded to a consortium comprising Sing Development and Wee Hub Development. This site is located near to the Thanggam LRT station and eateries along Jalan Kayu and The Seletar Mall.
Private home sales for new condos and apartments climbed to a 15-month high in October 2016 as Forest Woods and The Alps Residences continue to sell well.
Last month, developers sold 1,252 new condominiums, more than double the 509 sold in September. It is the highest since the 1,655 units sold in July 2015 according to caveats lodged.
More than 300 units were sold at both The Alps Residences in Tampines and Forest Woods in Serangoon.
All in a total of 1,540 residential units were sold in October, which includes executive condominiums (EC). This figure is higher than the 769 units sold during the previous month.
This is indeed good news for the property sector which has been languishing in dismal sales for most of 2016 and the first half of this year. It is still too early to say we are out of the woods as prices are not creeping up together with the sales figures. And with news of a looming technical recession in Singapore, property prices may not see any appreciation for some time to come. But this is a good time to buy a home that you have been eyeing for your own stay.
Two new projects, Parc Riviera and Queens Peak, are slated to be launched soon and this may move total sales figures to be above 8000 units, higher than the last 2 years.
EC projects also had a good year of sales despite the lack of new launches in the last quarter. In the first 10 months of 2016 alone, developers sold a total of 3,553 ECs, up 39 percent from the 2,550 units sold last year.
It has been 3 years since the Total Debt Servicing Ratio (TDSR) framework was introduced by Singapore’s Monetary Authority (MAS) to slow the rapid rise in property prices in Singapore. It has not only achieved it’s aim it has, together with other measures, also caused a gradual decline in prices to the tune of 10% since its introduction.
Within the last 3 years interest rates have also declined. This has prevented homebuyers who bought properties after TDSR was introduced to not be able to refinance if their income level has dropped.
Recognising this, MAS announced recently that the TDSR framwork will be tweaked to enable borrowers to better manage their existing debts.
Under the new rules which took effect in September 2016, borrowers who bought properties for their own stay after the introduction of the TDSR on 28 June 2013 will no longer be limited by the TDSR threshold of 60 percent or Mortgage Servicing Ratio (MSR) limit of 30 percent at the time of refinancing. Without this change only owner-occupied properties bought before the implementation of the TDSR were exempted from the TDSR ruling.
With this change borrowers can now refinance their investment property loans above the TDSR threshold, regardless of when the properties were purchased, but two conditions must be met:
1) Borrowers must commit to a debt reduction plan with their financial institution to repay at least three percent of the outstanding balance over a period of not more than three years; and
2) Fulfill the financial institution’s credit assessment.
This will definitely benefit home owners who recently lost their job in this weak economic environment or had a change in their employment status resulting in reduced income.
Full statement from MAS here.
Buying volumes are returning and prices are stabilising. So is Singapore property market finding a bottom?
There are some signs of buying interest returning from pent-up demand. Many who have waited for prices to drop are now having the feeling that after waiting for 2 years it is time to dip into the market. Developers are giving more discounts and freebies to move dead stock. New projects are seeing some healthy demand as well albeit in the lower end market segment.
All these are good news for the property market which has been stucked in a slow grind to the downside for much of 2013 and 2014.
The last few months have been more encouraging as I noticed that buyers are more serious in closing deals rather than waiting for fire sales to come along. However I do not see a surge in prices anytime soon. TDSR and other cooling measures are still effective in curbing excessive exuberance. What I see in the market are genuine buyers who want a roof over their heads.
There are still many “known unknowns” like how high and how fast will interest rates rise and whether China and Euro region is going to have a hard landing; and some “unknown unknowns” that no one can predict. The good news is that there is a temporary respite in rising SIBOR rates and it has in fact dipped slightly. See SIBOR chart below:
Although the market looks like bottoming, it is in no way, shape or form out of the woods. Road blocks and shocks can come from external factors. However it is comforting to know that governments, including Singapore’s, do not want to see major upheavals in their economies and will act positively to generate growth. This will provide a solid platform for stabilisation in prices and hopefully continue to trend up.
Singapore property prices have declined for 6 quarters as a result of the cooling measures. Price declines were seen across all segments of the private residential and HDB units. Sales volume dropped substantially but the cumulative price decline of around 6% is not alarming, yet.
In this post I am going to explore how low can property prices drop strictly from the angle of affordability, stripping away factors that are unquantifiable such as sentiment, confidence, future economic performance and external factors.
What is Housing Affordability?
Affordability is one of the backbones of support for any property market. At the national level managing affordability is one of the major policy tools in controlling the housing price and demand.
Put simply, affordability is the ratio of house price to lifetime income.
A recent study by the NUS Department of Economics defines housing affordability as a ratio less than or equal to 0.3 or 30% of lifetime income. Although this is a very rough estimate based on averages it can give us a glimpse of where we are in terms of finding a bottom, notwithstanding a multitude of factors that may afflict the market. The ratio does not take into account whether buyers can afford the downpayment.
From the latest Department of Statistics survey the Singapore worker’s median income is S$3,770. Given that the majority of home buyers are from dual income families, we can double the median income and use $7,540 for our calculations. Assuming an average working life of 30 years, the lifetime household income is approximately $2.7 million.
Therefore 30% of lifetime income is equivalent to S$810,000.
Again applying the broad use of averages here, we can postulate that if a 3 bedroom mass market private residential apartment in an average neighbourhood, ie outside of the central region (OCR) drops to S$810,000 or below it would be considered affordable. This is the price of true affordability where the average household can comfortably afford a 2-3 bedroom private condo/apartment. Some or all of the cooling measures might even be withdrawn before this level is breached.
Any increase in median wages will see this value increase proportionately. Below is the projected wage growth till 2016.
Will You Buy If Prices Dropped Another 30%?
So let’s see where we stand right now. Currently prices for a new 3 bedroom unit outside of the central region (OCR) is around S$1.1 to $1.3. To drop to $810,000 is a decline of around 30%. Yes that is drastic. Bear in mind that this is only a theoretical value, a line in the sand so to speak, where prices will be supported by the mass market.
Let’s say if a new 1200 sq ft condo/apartment at Hougang, Bedok or Jurong dropped to $800,000 would you buy without hesitation?
Do drop me your thoughts and comments below.
With Singapore’s property prices sliding almost 5% for 5 straight quarters the question on everyone’s mind is when will the cooling measures be removed.
If you are not familiar with the complex measures please refer to the summary of the cooling measures in my last post.
The pain is beginning to bite for some investors as highlighted in the media of high end properties being sold for multi-million dollar losses. Rents are also falling and a huge supply of units are expected this year and next. Interest rate pressures are beginning to bare its fangs with the Singapore interbank offered rate (SIBOR) posting huge jumps recently. Some MPs raised concerns in Parliament that the there is a risk that Singapore’s property market may slip too far.
So are these mounting pressures enough to convince the government to scale back the cooling measures?
Not yet, according to the Minister for National Development Khaw Boon Wan. He has reiterated many times that although the measures are working well to tame the exuberance, prices remain elevated. However Mr Khaw mentioned in parliament recently that “we want a soft landing for our housing market because a market crash benefits no one”.
Effects of the Singapore Property Cooling Measures
Let’s look at the ‘damage’ done so far through the 9 rounds of cooling measures. The first chart below is the effect on housing prices. Note that the measures only began to bite after the TDSR was introduced.
The next chart shows the effects on sales volume. Notice that the no. of homes sold took a nose dive after the TDSR date.
It is clear that the cumulative effects after 9 rounds of cooling measures are severe on home sales but home prices have not yet reflected the severity. I think the government would like to see further drops in price before scaling back some of the measures as any premature action will see prices moving back up which may be seen as flip flopping on their part. They are also on the lookout for any signs of impending crash. This will probably bring about a quick pullback on some measures. Even then, I believe the TDSR is here to stay.
In my next post I will look at home prices from the angle of affordability for further clues.