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Thread: Chilling effect on property market as cooling measures hit developers, buyers

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    Default Chilling effect on property market as cooling measures hit developers, buyers

    COMMENTARY

    Chilling effect on property market as cooling measures hit developers, buyers

    Mon, Jul 09, 2018

    CHRISTINE LI


    THE timing of the additional cooling measures came as a surprise on Thursday, as developers have just loaded up their landbanks over the last 18 months in anticipation of blockbuster sales in the second half of the year and beyond. Private property home prices have only risen 9.1 per cent over four quarters since the start of the recovery in 3Q17. This pales in comparison with the recovery in the previous cycle, when prices rose by 38.2 per cent from 3Q09 to 2Q10.

    With new cooling measures hurting affordability from first-time buyers to investors, buying demand will take a hit. Primary home transaction volume can take a plunge of easily 30 per cent, as developers will tread cautiously with new launches. Although affordability of the buyers will be impacted, developers are unlikely to slash prices at this juncture, before the dust settles. We could expect a quiet quarter or two ahead with new home sales going back to on average 500 units a month for the rest of the year (with the exception of the month of July as buyers rushed into the three new launches before the new tax rates took effect).

    In terms of price expectation, although we are only 3.6 per cent below the last peak in 2013, touching those levels would be challenging now given the battered sentiment and wide-ranging impact. Buyers would want to renegotiate the terms because of the higher acquisition costs and lower affordability, but the sellers with deep pockets will not slash prices just yet. With such mismatch in price expectations, the market could come to a standstill over the next couple of months.

    We expect these additional measures to affect foreigners, Singaporean/Permanent Resident investors and real estate developers the most. ABSD rates have been raised across the board with exceptions for first-time Singaporean and PR buyers. For example, Singaporeans buying a second property worth S$1 million will now have to pay S$120,000 in ABSD, up S$50,000 as compared to S$70,000 previously. Loan-to-value (LTV) rates will also be tightened by five percentage points for all housing loans granted by financial institutions. LTV limits for mortgage equity withdrawal loans have also been tightened. With 15-24 per cent upfront acquisition costs, investors - both domestic and foreign - will take a back seat and reassess the viability of the investment.

    Entities buying residential properties were the hardest hit, with the ABSD rate increasing 10 percentage points as compared to a rise of five percentage points for retail buyers. Developers now have to pay an additional 5 per cent in non-remissible ABSD. We believe this would have a cooling effect on the en bloc market, as the cost of acquiring land has effectively increased. Furthermore, developers now face higher risks if they are unable to sell all the units within five years of acquiring the land. Developers are likely to take a cautious stance in their bidding for both en bloc sites and GLS sites before the dust settles.

    Given the further increase in cooling measures in the residential market, the commercial or industrial market could now see renewed interest as investors scour for other opportunities in the market. Commercial rents have performed strongly since 2017, while industrial rents are showing signs of stabilisation.

    Though this round of cooling measures is quite heavy-handed, the outlook on buying demand remains uncertain, given the firm economic outlook, recovering labour market and strong latent demand for property investment.

    The writer is senior director of research at Cushman & Wakefield (S) Pte Ltd.

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    Higher ABSD rates will hit new home sales

    Jul 8, 2018

    Christine Li


    The new property cooling measures announced on Thursday came as a surprise, arriving just as developers have loaded up their land banks over the past 18 months in anticipation of blockbuster sales this year and beyond.

    Private property home prices have risen only 9.1 per cent over four quarters since the start of the recovery in the third quarter of last year. This pales in comparison with the recovery in the previous cycle, when values rose by 38.2 per cent from the third quarter of 2009 to the second quarter of 2010. The Government is perhaps of the view that the best way to safeguard the health of the property market and prevent it from overheating is to nip the exuberance in the bud.

    The demand-side measures announced on Thursday could be the most draconian since the late 1990s. Although it is just an add-on to earlier-imposed Additional Buyer's Stamp Duty (ABSD) rates, the effective acquisition costs for property have increased substantially along with further loan curbs.

    With the revised cooling measures hurting affordability, demand will take a hit. Primary home transaction volumes could plunge by easily 30 per cent as developers will tread cautiously with new launches. Although buyer affordability will be impacted, developers are unlikely to slash prices until the dust has settled. We could expect a quiet quarter or two of new home sales, going back to an average of 500 units a month.

    This month would be an exception as buyers rushed into the three new launches on Thursday night to sign sales agreements for new homes before the new ABSD rates took effect on Friday.

    Entities buying residential properties were the hardest hit, with the ABSD rising 10 percentage points compared with 5 percentage points for retail buyers. Developers now have to pay an additional 5 per cent non-remissible ABSD. We believe this will have a cooling effect on the en-bloc market.

    Developers now also face higher risks if they are unable to sell all the units within five years of buying a site. They are likely to take a cautious stance in bidding for en-bloc and government land sales plots.

    As a consequence, the commercial and industrial sectors could now see renewed interest. Commercial rents have performed strongly since last year and those for industrial space are showing signs of stabilisation.

    Though this round of cooling measures is quite heavy-handed, the outlook on buying demand remains uncertain, given the firm economic outlook, recovering labour market and strong latent demand for real estate investment.

    In terms of price expectations, although we are only 3.6 per cent below the last peak in 2013, touching those levels would be challenging now given the battered sentiments and wide-ranging impacts.

    Buyers will want to re-negotiate the terms because of the higher acquisition costs and lower affordability, but sellers with deep pockets will not slash prices just yet. With such a mismatch in price expectations, the market could come to a standstill over the next couple of months.

    We expect these additional measures to affect foreigners, Singaporean/permanent resident investors and real estate developers the most. With 15 to 24 per cent upfront acquisition costs, investors both domestic and foreign will take a backseat and re-assess the viability of the investment.

    •The writer is the senior director and head of research at Cushman & Wakefield Singapore.

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