Although with the talk of a recession that might be possible and also the uncertainty in the global economic climate, the prices for private residential property in Singapore here have a record high in 5 years.
The high record is based using the flash estimates from Urban Redevelopment Authority (URA) of Singapore for the second quarter of 2019 which was released on 1st July 2019, Monday.
This property price increase was following after the decrease in property prices for 2 consecutive quarters. The analysts of the industry have attributed the price increase due to the factors like the filtration of the large amount of money from the collective sales into the property market, and the reputation of Singapore being a safe haven during times of trouble for attracting the money from foreign investment in.
Generally, the property index for private residential has increase by 1.3 per cent in the second quarter of 2019 which is from 148.6 point in the first quarter of 2019 to 150.5 point from the period of April 2019 to June 2019. The property index for private residential in the first quarter of 2019 had fell 0.7 per cent.
The property index had recorded decrease in the previous 2 straight quarters as the latest cooling measures for the property market began to see its effects.
The URA property price index for private residential stood at 152.2 point in the third quarter of this year. This was a 0.9 per cent increase from the second quarter of 2019.
Looking away from the figures of the headline, nevertheless, some analysts from the property market has mentioned that the increase in the property prices after their fallings should not be come as a surprise. This is even the fact that the economic growth of Singapore – which is one of the essential factors that underpins the prices of the property market – is forecasted to be in the weakening state in the up and coming months.
This article has examined a few factors which might be the underlying reasons for the property prices increase.
The First Factor: The Weight of the Monies from En-Bloc Sales
One of the reasons for the increase in prices for property will be the huge amount of funds that can coming in to the sellers’ bank accounts from the successful en-bloc sales from 2018 has been yet to have itself fully manifested into the property market, said one analyst.
Suntec Real Estate Consultants’ Director of Research and Consultancy, Mr. Colin Tan has also added that with more than 1 billion dollars from the collective sales, there is the question that where did these monies go to. At least 50 per cent of these beneficiaries will need a home replacement, he said.
Mr. Tan has said that the private residential property market’s rental has gone upwards 1 per cent on the first quarter of 2019. This was partly due to a portion of the rental coming in from the beneficiaries of those collective sales.
The most current trend may have indications that all these tenants presently are going in to the property market as buyers, he pointed out.
The Executive Director of Consultancy and Research, at Savills Singapore, a service provider for real estate, Mr. Alan Cheong had also pointed out that the “weight of the monies” from people who have benefitted from the collective sales is something that the market cannot ignore.
The Second Factor: New Development Launches at Higher Pricings
Several analysts noted that although the cooling measures in July 2018 implemented has dampened the market’s demand, the property developers still needed to price their launches of private homes higher than the market valuations due to the factor that their prices to break even are higher, this is especially true when the lands that they acquired during 2017 and 2018 are at high prices.
This, as the result, has driven up the prices of transactions for non-landed properties in the areas of those new project launches, they added.
Mr. Eugene Lim, the Key Executive Officer of property agency, ERA Realty, highlighted that among those cooling measures on of it was the inclusive of a 5 per cent Additional Buyer’s Stamp Duty which is non-remissible. This has effectively raised the land parcel’s price of residential development by a minimum of 5 per cent, he noted.
Mr. Cheong mentioned that his expectation on the URA property price index will be seeing a “see-saw” effect for the coming few quarters that has a positive bias towards the upside.
The Head of Research for South East Asia and Singapore, at Cushman and Wakefield, a firm that is in real estate services, Ms. Christine Li, has also pointed out that the property developers do not have leeway for pricing their new project launches at lower as they have acquired the lands at high costs during the boom of the property market that were in 2017 and 2019.
With property buyers still willing to buy at the current prices, the sales momentum is keeping up in the primary market, Ms. Li pointed out.
Ms. Li pointed out that the in May 2019, there are 12 residential units at 3 Cuscaden condominium, located in the neighbourhood of Orchard Road, which were continued to transacted at the median pricing of $3,568 per square foot – a dizzying level of pricing which is not common in the years recently. About the take up rate of this project is high with close to 60 per cent sold although it was only launched in November 2018, she added.
The Third Factor: The Effect of “Safe Haven” of Singapore
Some of the analysts have argued that the status of Singapore being a safe haven might have rerouted some of the foreign funds to Singapore in the arrangement of property investing as a result.
This might be reason for the explanation to why the recovery in prices of property here was being headed by the increases in price from the prime districts and the city fringe areas as highlighted by them.
According to flash estimates for third quarter of 2019 as released by the URA on 1st of October, the prices for non-landed properties situated in the Core Central Region recorded an increased by 2.9 per cent while those units that are situated merely outside the core central region recorded an increase of 1.6 per cent.
Some of the New Launches in Core Central Region
Some analysts said that this might be showing that property buyers and investors are still feeling positive on the Singapore residential market’s prospects in terms of long term while taking in their paces for the volatility in the short term. They view at how the county will continue to keep up its rank amongst the cities that are most livable from the global top financial centres in the world.
Some analysts believed that the rise in the property price index was due mainly by locals buying them.
They noted that even in the event that Singapore goes into a recession, Singaporean would channel their investments into “hard assets” which one of those popular one is property. This is applicable typically for those baby boomers and middle-aged investors who feel “jaded” with those traditional investment tools such as bonds and equity which have proven to be disappointments in terms of both capital preservation and performance.
In the worst possible scenario, investor still own this “hard asset” (the property) even in the event it is still remaining to stay unoccupied.
Some of the New Launches in Rest of Central Region
The Fourth Factor: The Expectation of a Halt for the Hikes in Interest Rate
The possible fourth factor will be the market is anticipating there will be a cut in the interest rate by the Federal Reserve of the United States of America (Fed) this year, which will help to increase the prices of property as noted by industry analysts.
The interest rates of housing loans in Singapore, in the general, follow the trend of the Fed rates of United States.
Ms. Li highlighted that some of the prospective property buyers had their purchase plans deferred due to the fact that the interest rates for home loans have went up quite significantly over the last few quarters.
Nevertheless, from the US Fed’s latest indications, there are signals that it might push down its interest rates in the later part of this year. Those property buyers will be ready for commitment in an environment with lower interest rates as pointed out by Ms. Li.
Ms. Li also mentioned that real estate investments are always viewed as a hedging against the inflation.
The Larger Picture
To be putting all things in perspective, it is worth to note that property price’s increase in the last quarter is more restrained as compared to the 3.9 per cent jump in the first quarter of 2018 and the 3.4 per cent increase seen in the second quarter of year 2018.
Those two huge increases were coming from the back of two modest increases in property prices in last 2 quarters of year 2017, which is a rise of 0.7 per cent on the third quarter and the 0.8 per cent rise seen in the fourth quarter. This was after a drop in property prices for 15 quarters consecutively that had seen the property prices bottomed out in the second quarter of year 2017.
The latest round of cooling measures that was implemented in July 2018 had brought down the exuberance of the property market. This was seen in the third quarter of year 2018 with just a modest 0.5 per cent increase before the beginning for the property prices to drop by 0.8 per cent in total for the following six months.
2019 Property Price Projections
The overall increase on property prices for the entire of year 2018 was 7.9 per cent. During the beginning of year 2019, industry analysts had mostly forecasted an increase of from 1 per cent to 3 per cent year on year that is coherent with the growth in economy.
The net increase in property prices of 0.6 per cent, which had been seen on the first half of year 2019, has already the forecast on track as noted by the analysts.
For the entire year of 2019, Mr. Lim is expecting the property prices to be rising from 1.5 per cent to 2.5 per cent from the previous year.
Although property developers are facing with high and rising costs of construction and land acquisition, majority of them are still adopting a “practical approach”. The units of their new property launches are priced at realistic levels in order for the developers to be able to get the sales momentum that is required for selling more units, said Mr. Lim. Similarly, Mr. Ismail Gafoor, the chief executive officer of homegrown real estate agency, PropNex Realty, is predicting an increase of 2 per cent for property prices for the entire year.
Some industry analysts do believe that the prices for property will be remaining as relatively stable. They include the Head of Research for South East Asia for CBRE, Mr. Desmond Sim. He mentioned that the plunging pressure on the prices of private home might be coming in during the mid-term to long-term period with more new property launches coming on-stream in the market. And also, the property developers might at some point of time be obliged to lower down on their prices as they will need to sell off all their units in a development with 5 years after they have being awarded to the development’s site, Mr. Sim pointed.
Colliers International’s Head of Research, Ms. Tricia Song has highlighted that the prices for property would be likely to remaining flat for the next coming two quarters and for the whole of year 2019 to increase by 1 per cent.
However in regards to Mr. Cheong’s forecast, he predicted that the prices of property might increase as high as 8 per cent by year on year, owing it largely to the pushing factor of the costings in land acquisition. He also mentioned that the increase would not be an outcome due to developers profiteering or herd mentality.
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