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Residential properties: Waiting for Godot?
by Ku Swee Yong
04:45 AM Jul 01, 2011
Home buyers - especially those buying for owner-occupation rather than investment - have frequently commented: "I want to wait for the next downturn before I purchase my home."
They have been saying this for the past 12 to 18 months. Till today, they remain adamant about the impending downturn of the property sector. If they are lucky - lucky of the Big Sweep kind - a sharp downturn might come soon. Perhaps a perfect storm of external crises added on to an immense oversupply of completed units?
Imagine: Greece decides to default on its debt, European lenders stumble because they bought the bulk of the Greek debt and this in turn cripples US financial institutions because they insured European banks against Greece's default. Consequently, Spain, Portugal and Italy are rushed into a financial ICU, global credit re-freezes, affecting even the conservative Asian banks. Global confidence sinks, employment shrinks in Singapore and property prices here fall because the fringe investors feel the jitters.
If such a scenario really occurs, the lucky potential home buyers who remain cash-rich may get a chance to buy on the cheap, say, perhaps 20 per cent below today's prices - taking us back to levels of about 12 months ago, not 18 months ago.
But, has it been worth the wait? Let us begin with the basic facts. The Urban Redevelopment Authority's (URA) Private Residential Property Price Index has climbed about 50 per cent in the last 18 months. On a year-on-year basis, the private residential index has shown growth every quarter for the last six quarters.
Over the period of October 2009 till March this year, the Straits Times Index (STI) rose steadily as the economy expanded strongly. The booming economy created new jobs, increased wages and generated new wealth. Inflation rose faster than the strengthening Singapore dollar could help, hitting a three-year high of 5 per cent per annum due to global commodity shortages, food supply disruptions and roaring Certificate of Entitlement prices. The one key component in the whole equation that slithered downwards was interest rates.
Savings rates have been below 0.5 per cent per annum for the past two years. For the home buyers who have waited for the market dip since end-2009, not only have their Singapore dollars diminished in value due to inflation, they might have missed out on the 17-per-cent rise in the STI or the 50-per-cent rise in the private residential sector. Those who invested their cash in the Singapore stock market will still be down against those who invested in the private residential sector.
But here we are talking in general about price growth. We have not included the returns from stock dividends or return on equity for properties financed with loans.
Particularly for the home buyers who stayed on the sidelines in the last 18 months and who are still not committing, we have also not included the "return on enjoyment". In fact, I would say that staying uninvested and missing out on the returns of enjoying one's own home is probably the biggest loss - loss of satisfaction.
For those who think that they might have missed the residential property boat, there is no need to fret. The 50-per-cent rise of the URA's Private Residential Price Index was driven by: 1) properties in the outskirts and 2) record prices and volumes achieved at new launches. There are many older apartments of good value in Districts 9 and 10 which have scarcely risen in price.
In the examples highlighted, Valley Park has seen a 15-per-cent increase in average $psf prices in the last 18 to 20 months. That is well below the overall rise of 50 per cent for all residential properties across the island over the same period. And at a unit price of between S$1,200 to S$1,400 psf, it is my view that these properties above represent exceptional value versus properties in the Outside Central Region (OCR) that transacted at this price range recently.
There are many more examples of well-built developments in districts 9, 10 and 11 whose prices have increased by less than 20 per cent and are trading well below their newer neighbours: Aspen Heights, Waterfall Gardens, Nassim Jade, Tanglin Park and Sommerville Grandeur, just to name a few. I believe that there exist many good-value homes for those who search hard. As these properties are considered undervalued relative to their neighbours, the downside to the price levels will be limited even if a Greek debt crisis occurs.
Ku Swee Yong is the founder of real estate agency International Property Advisor, which provides services to high-net-worth individuals. He is the author of Real estate riches: Understanding Singapore's property market in a volatile economy.
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Housing glut or not, worries remain
by Colin Tan
04:45 AM Jul 01, 2011
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The expected surge in the supply of new Housing and Development Board (HDB) flats and private homes over the next few years will not lead to a housing glut in 2013/ 2014, according to a recent Citigroup property report that made news for its contrarian view.
Citigroup's analysis looks at Singapore's housing stock in totality, taking into account both private and public housing, saying they are closely linked. It says a prolonged period of under-building in the 2000s has resulted in the current severe housing shortage. This is likely to provide continued support for mass market prices and demand.
The team behind the report estimates that the deficit in housing units is in excess of 50,000 currently and this undersupply will likely take several years to clear, just like the oversupply situation in the early 2000s.
I do not totally disagree with their view. If you examine the facts, there was definitely serious under-building, especially in the public housing sector, the repercussions of which we are feeling now. What you may dispute is the extent of the under-building.
I am not sure if the team realises it but it was describing all the ingredients coming together for the perfect bull run that we are experiencing now, as opposed to the perfect storm that some are predicting that the market will face in two to three years' time.
The decade of under-building has led to a strong build-up of pent-up demand. Throw in a loose immigration policy, the strong stimulus provided by the integrated resorts and other infrastructure projects leading to a spectacular 14.5-per-cent gross domestic product growth rate last year, abnormally low interest rates and a liberal foreign ownership policy with respect to property and you have the perfect bull run.
The run-up has been sufficiently strong to fully negate the effects of four rounds of property market cooling measures. It has yet to be tamed as the market is still running on many legs - one of which is the low-interest-rate environment, which will likely persist in the near future.
However, even if one holds the view that there will be no property glut in 2013/2014, it does not mean that our worries are over. We cannot preclude that one can quickly build up later.
It is already evident that there are imbalances in the different housing segments even if there is an overall equilibrium - oversupply in the upper tiers and a shortage in the lower tiers.
In a rapidly rising market where prices rise faster than household incomes, the imbalances will worsen. If prices do not correct soon to re-align the mismatch, more supply may need to be announced to correct the severe shortage in the lower tiers. This can quickly build up into a glut even if one does not exist now.
If you subscribe to the view that there will be equilibrium by 2013/ 2014, what it means is that there is a limit to the price downside when the market corrects. Prices will fall until they reach the support level that matches all units with occupiers. In other words, we will have a sharp correction but no crash. But if you feel that there will be a glut between now and 2013, a price correction can be severe as there will simply be more housing units than occupiers.
Finally, the profile of buyers in the HDB resale market for May showed that private property owners (8 per cent) and permanent residents (20 per cent) still make up a sizeable chunk. Last year, then National Development Minister Mah Bow Tan revealed - before the implementation of the new rules - that 10 per cent of buyers in the resale HDB market were private property owners, while PRs made up 20 per cent.
The latest numbers seem to suggest that the new rules have been ineffective. On the contrary, I feel the measures have worked. What we are seeing are probably single-property private owners who are downgrading, owing to en-bloc sales or otherwise.
The indications from agents are that resale volumes have fallen drastically in May. So 8 per cent and 20 per cent on a sharply reduced volume is much smaller in absolute numbers. In fact, most private property owners and PRs who bought in May probably had little choice, unlike citizens who have the option to buy new Build-To-Order flats.
Colin Tan is head, research and consultancy, at Chesterton Suntec International
