The uptick in the price index as well as the higher take up rate in new housings in August have one asking the questions if the effects of the cooling measures for the property market last year has wear off.
Around 7 pm 5th of July 2018, the announcement by the Government to raise the rates of the Additional Buyer’s Stamp Duty (ABSD) and also to tighten the Loan-To-Value limitations had caught many by surprise inclusive of key industry players and market veterans. The rational for this new round of cooling measures are to curb the residential property sector’s “excessive exuberance”. These cooling measures were to be with effect from 6th July 2018 which arrived just as many property developers had their land banks replenished during the numerous successful en-bloc tenders from 2017 throughout to the 1st half of 2018.
The effectiveness of these property cooling measures could be felt almost immediately which had turned the tide for the rising home prices for the next quarter of 2018 after the implementation. The next 12 months had also seen the sales volume for private homes had dipped to almost half.
Despite of these, the prices for residential properties had relatively remained stable with the pricing index rose over the 2nd half of 2017 by 0.5% and also a small drop in the 1st quarter of 2019.
In the 2nd Quarter of 2019, Prices unexpectedly soared to a 5 Years High Despite the 2018 Round of Property Cooling Measures
In a surprised twist, the prices for private homes increased by 2% in 2nd quarter of 2019. This fluctuation had not only surprised many market observers but it also had erased the declines in prices that were recorded after the 3rd quarter of 2018.
According to the Urban Redevelopment Authority (URA) date, price index for private homes for the 2nd quarter of 2019 had recorded the highest ever since 1st quarter of 2014. Some market analysts had called this rise in price an anomaly which is contributed by new pricing benchmark that were attained by the transaction of new property launches. Some believed that this validated Singapore’s real estate market’s resilience.
The Sales for New Private Homes Remained Steady Even in The Hungry Ghost’s Month Period
Usually the market is likely to slow down in the month of the Hungry Ghost but it was not so in August 2019. The market remained strong with more than 1,000 new private homes sold by the developers.
Based on URA’s data, more than 1,122 new private properties were transacted during August 2019 which is a decrease from 1,179 transactions in the previous month (which excludes Executive Condominiums). Although there a small dip for the sale volume for August, the residential property market for August is still considered to be robust as the volume almost close to the July month which usually has higher sale volume than the monthly average for a year.
This uptick in the price index and also higher sale volume for new private homes for August have risen the questions if the effectiveness of the new property cooling measures for 2018 are wearing off. While these cooling measures have attained the goal that they were implemented in the first place which is for the stabilization of the residential property market which was overheated, there are signs that the momentum for the private home market is beginning to regain. The following reasons might be the reasons:
- The market has “gotten used” to the increasing stamp duties.
- Close to 27,000 public flats has fulfilled their Minimum Occupation Period (MOP) in last quarter of 2018 which fueled fresh demand for private housing.
- The love affair of Singaporeans and Singapore properties continue, especially amidst the economic volatility.
- Singapore real estate market still attractive to the foreign investors.
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1. The market has “gotten used” to the increasing stamp duties.
Singapore residential property market was shaken by 2018 July’s round of property cooling measures. The cost of acquiring residential property for investment has had a huge increase overnight.
For example: According to the present ABSD rates, for Singaporeans who are purchasing a 2nd residential property with a price tag of $1.5 million will have to pay a stamp duty of $224,600 comparing $149,600 prior to 6th July 2018.
Also, with the tightening of the LTV limits, purchasers will have to prepare much more cash outlay for the initial payment. This measure will also affect those first time purchasers who need to fork out an additional 5% cash payment unless there are sufficient CPF monies in their accounts.
It is not surprising that with higher costs of acquisition, certain market observers would expect a decrease in prices of private homes, especially when buyers start adopting a “wait and see” mindset. As shown in the above graph, it can be shown in transaction volumes’ downward trend, typically for resale segment, from 3rd quarter of 2018 to 1st quarter of 2019.
Investors were also seen to be turning their interests to shop houses, commercial buildings, industrial properties and also overseas properties during the same period.
Nevertheless, the improvement in the buying sentiments for the 2nd quarter of 2019 is suggesting that those purchasers who forced to sit on the bench after the cooling measures may have “adjusted” to the fluctuations of the quantum in price from the higher rates in stamp duty. This is supported further with the facts that the developers are redundant to massively reduce their prices with their higher costs in their land acquisitions.
Also the control of policy has the tendency to instill the psychologies of FOMO (fear of missing out) for some buyers which had prompted them to take action with the fear of a newer round of cooling measures which might force them to sit out the market again.
2. Close to 27,000 public flats has fulfilled their Minimum Occupation Period (MOP) in last quarter of 2018 which fueled fresh demand for private housing.
According to the record of HDB on the completed residential developments of the HDB, there is an estimation of 26,723 HDB flat (with the exclusion of Design, Build and Sell Scheme (DBSS) flats) that may be fulfilling their Minimum Occupation Period (MOP) of 5 years in this year. This denotes a year to year increase of 58.3% according to the research by OrangeTee & Tie.
The real estate consultancy has mentioned that the Punggol estate and the Sengkang Estate are likely to have a rise in the number of resale transactions for HDB flats as there is an estimation of more than 10,000 HDB flats that had fulfilled their MOP in the last quarter of 2018. At the same time, there are an estimation of 4,000 HDB units has met their MOP in the mature housing estates of Ang Mo Kio, Queenstown and Bukit Merah.
The real estate consultancy has also highlighted that there will be an estimation of 50,000 HDB flats which may be meeting their MOPs from 2019 to 2020. Furthermore, there will be an estimation of 3,450 DBSS flats this year that will be hitting their MOPs as compared to 800 DBSS flats in 2018 as well as 1,200 DBSS flats in 2017.
With the sheer volume of these MOP flats, there will be minimum doubt that there will be spill overs from those who wish to upgrade from HDB flats to the private residential market. There is also a hike in sale volumes for private residential projects like The Florence Residences condominiums and the Parc Botannia condominium especially in the duration for the year’s 9 months from the Researcher tool by 99.co
Source: 99.co Researcher
3. The love affairs of Singaporeans and Singapore properties continue, especially amidst the economic volatility.
The love affairs between Singaporeans and properties here have dated since long time back. These love affections come from the thought things that are physical are tend to be much safer and the value of a property is self-evident. After all, a home is a roof over the shoulder. Even though there is a possibility that the value of a property might drop, this asset will have the continuation of its existence and also providing its functionality.
In additional to that, private residences continues to be very appealing to upgraders of HDB flats with their contemporary amenities and facilities and also the societal status that is associated to ownership of a private property. According to an earlier interview by 99.co with Savills Singapore’s Research Executive Director, Mr. Alan Cheong, he mentioned that the market still upholds the belief of that a superior investment for long term as well as being able to provide the symbol of status will still be private property.
It is due to these reasons which allow private residential properties to be still highly coveted by many Singaporeans for such a long time. This is especially true when during this time amid the fears of having a global slowdown in the economic which will prompt investors to look for safe havens. Investors during this time will be thinking to shift their investments from those assets that are higher risked like equities to safer ones like gold and certainly properties as well.
4. Singapore real estate market is still attractive to the foreign investors despite the property cooling measures.
The reputation of Singapore remains to flourish as a haven for safe and stable investment in the world, especially in the Southeast Asia region. This has brought over many foreign investors who are interested to for their wealth to grow and also to be able for preservation to this city state.
There are some other factors as well that might have caused many foreign investors to divest their assets to here. During these recent months, it is observed that there is an increase in the number of foreign investors to move into the property sector in Singapore. This is especially at this period, amid the ongoing trade war tensions between the United States of America and China with also some other uncertainties around the world such as Brexit, the ongoing protests in Hong Kong, the trade tensions between Japan and South Korea and more have threatened to put a dark cloud over the global economy.
It was also reported that some tycoons from Hong Kong have shifted the assets that belong to them personal to offshore as the growing concern with the plan of their local government which will allow the extraditions of the suspects to China to face trials. This extradition bill was subsequently withdrawn by the government after heavy protesting from the public.
According to the date from the URA, new home sales that belong to private properties that are non-landed had a big jump. There is whopping 680% increase from 30 transactions that are caveated in the 3rd quarter of 2018 to about 234 caveated transactions in 23 quarter of 2019. This is happening even though there is an increase in the ABSD rates from 15% up to 20% for foreigners buying residential properties in Singapore. Although the stamp duties are higher, this proves that residential properties in Singapore still continues to provide a value proposition that is attractive to foreign investors.
Another driver for the market is the comparatively affordable pricings for the properties in Singapore. Although the common gripe of Singaporeans is that the prices for housing are too high, they are actually viewed as being relatively affordable as compared to cities of gateway such as Hong Kong. Wealthy investors that are looking for good investments may also take into considerations that the prices for housings here have dropped from late of last year to early of this years and view this as a time to enter to this market.
From the above factors, there will not be any surprise if the prices for housings will continue to soar in the upcoming quarters.
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