Are cooling measures really working?

[mr funny]

http://www.todayonline.com/Business/...eally-working?

Are cooling measures really working?

by Colin Tan

05:55 AM Feb 18, 2011


The news headlines this week about developer's home sales for last month were almost comical, doing little justice to the actual reports that followed. Unfortunately, people remember the headlines and not so much the details.

Data released by the Urban Redevelopment Authority (URA) on Tuesday showed a total of 1,189 new private homes sold last month. That is a 10.7 per cent drop from December and a three-month low.

Alas, this is sufficient for some analysts to conclude that the latest round of cooling measures was having an impact already.

And that the drop was not worse than expected as the measures were introduced only in middle of last month and were still working their way through the market. However, the full impact will be felt only in March, they said.

Much as I share the same sentiment and the hopes of many to see a more stable market, I think our impatience to see the measures work this time around is making our analyses and reports sound like propaganda.

Let us put aside the cooling measures for the time being and look at the numbers for what they are.

Take the "three-month low" headline. It is factually correct but did you know that there were three occasions over the past twelve months when the URA number hit three-month lows. Including January this year, the other two occurred in June and September last year. This is one short of a perfect score.

Take the 10.7 per cent drop in sales. I recall the December sales figure actually showed a sharper drop of 30 per cent from the previous month and this was before the latest cooling measures were announced. In fact, developers' sales of private homes recorded far greater month-on-month falls on four other occasions last year. They occurred in February (-19.2 per cent), May (-51.2 per cent), June (-21.4 per cent) and August (-19.4 per cent).

What about the excuse of having only half a month for the measures to work, given they were announced on Jan 13 to be effective the following day?

Assuming developers do most of their sales on weekends, there were five such weekends in January - two before the measures and three after. Of the two before, one was a public holiday weekend (New Year's Day).

After saying the measures are definitely having an impact, some market watchers are predicting more or less the same sales volume for February. We have the whole month here - ironically, the shortest month in the calendar year.

Did I miss a step or two in the reasoning here?

What is the compelling reason for the full effect to show up only in March? Maybe February is not a good month to gauge the impact as buyers are flush with cash from red packets handed out from the Chinese New Year celebrations and simply need to put some of it down for a property or two.

Let us not forget that January and February have traditionally been slow months for sales.

If we continue to sell 1,189 units each month for the next 11 months, this will bring total sales for the year to 14,268 units.

This will make it the third best result ever after last year and 2009.

In the latest figures, suburban properties chalked up the most sales with 588 units. If we include the 345 executive condominium units sold, the demand for the mass market housing segment amounted to 933 units. Are these signs of fragility in this market segment?

Let us bring in the cooling measures now. The imposition of a sellers' stamp duty of 16 per cent for a resale unit in the first year, dropping by 4 per cent for each subsequent year, made headlines across the world when it was first announced.

If Hong Kong can do it, we can do it one better. Short of a complete ban on purchases, it must be among the harshest if not the stiffest in the world.

In that light, we are surely entitled to expect a far greater impact than the one we have seen to date.

Finally, someone forgot to tell the 13 developers who participated in a tender for a mixed residential-commercial site in Punggol that the latest cooling measures are having a significant impact on the market. The top bid crossed S$1 billion.

Although this is a mixed-use site, the group with the highest bid said it wanted to build about 680 flats with water views incorporated within a waterfront development and including a 365,000-sq-ft retail mall.

That is absolutely amazing for a site in a far corner of Singapore. Sadly, once again, the headlines did not do justice to the significance of the billion-dollar bid. What they overplayed in the private home sales story, they underplayed in the land tender story.



Colin Tan is Head, Research & Consultancy at Chesterton Suntec International.

[bargain hunter]

election around the corner. SPH of course have to write the two headlines like they did what...

[mcmlxxvi]

As long as economy is sound and developers still have money to place high bids and are dry in landbanks, resulting sale prices will go up. To hope for low prices, when it happens the economy will be in turmoil anyway so where are the so called buyers waiting for the low when they struggle to make ends meet already...

Cooling measures will only weed out the super highly leveraged investors but to hope for a price drop and buying to stall significantly at this point is rather silly I feel.

[spikey69]

volume may be down but prices are either up or stable...huat ah!

[rattydrama]

As long as economy is sound and developers still have money to place high bids and are dry in landbanks, resulting sale prices will go up. To hope for low prices, when it happens the economy will be in turmoil anyway so where are the so called buyers waiting for the low when they struggle to make ends meet already...

Cooling measures will only weed out the super highly leveraged investors but to hope for a price drop and buying to stall significantly at this point is rather silly I feel.

dare to show hand? 4% interest rate will kill

[Rysk]

The 4% interest rate been repeated for mths & mths liao...

[rattydrama]

The 4% interest rate been repeated for mths & mths liao...

not these 2 years.....

[CCR]

Interest rate cannot go up too fast or else it will derail US economy.... Plus singapore is now a global financial centre lots of money parked in sin, coz liquidity is very high so the days of high interest rates are over... Unless there is runaway inflation in other countries...

[Rysk]

not these 2 years.....

Yeah! Some ppl also repeated "not these 2-yrs" since 2008 liao..
Repeated till 2011, still repeat the same again..

[hyenergix]

Property loans nowadays are 25-30 years. No point greedy over 2 or 3 years of low interest rate and suffer many years of high interest rate later. When you want to exit due to high interest rate, many people will be rushing out together with you.

Before the recent property measures, there are many highly-leveraged owners out there. These are the ones that you should be afraid of because while they can create new high psf in good economy, they can also do the reverse in bad economy.

Singapore has such an open economy that economy cycles will be much more common than other countries like China. The property boom from 2006-2010 was due to a policy mistake of too many immigrants and too little HDB flats. It is not due to astute investments by individual property investors.

The fundamental issue of this boom was started to be addressed in 2009. From 2012, many new HDBs will be completed. The potential buyers and tenants of the private properties will then decrease. Unfortunately this coincides with the TOP of most condos that were sold from 2009 when the perception of high market demand was huge.

[rattydrama]

Yeah! Some ppl also repeated "not these 2-yrs" since 2008 liao..
Repeated till 2011, still repeat the same again..

This point is an important point. Well when will it come I dont know but this can be a trigger point for some to sell. 4% could be the threshold.

My friend was sharing that in those days a 800k loan will easily set her back 60k pa just for interest alone. The rental income collected not enough to pay the installment and has to do a top up. Rate was 6%

[teddybear]

From what you said, you seem to have missed the boat to pick up any property in 2009 during the great but short property crash? I already said openly in this forum in Mar 2009 that then is a good time to buy but I believe many won't believe. Never mind, still need to correct you that the property boom from 2006-2008 was interrupted with 1 of the worst crash in history in 2009 but luckily that was a short one. 2010 is the first year of recovery and people already starting to talk about "crash"? If even based on shortest boom-burst property cycle and govt didn't over do cooling measure, next crash earliest should be 2013. We still have 2 good years for property prices to appreciate. Who knows? may be it will last for another 8 years if govt's cooling measures are effective and achieve their aim and price rise is slower but sustainable over next 8 years? People who need a property for own stay better made up their mind and act now rather than wait? Wait for another 3-9 years?. But hor, don't buy new launch. If you buy new launch and when TOP property crash how? Buy more new launch and you will see more cooling measures?

Property loans nowadays are 25-30 years. No point greedy over 2 or 3 years of low interest rate and suffer many years of high interest rate later. When you want to exit due to high interest rate, many people will be rushing out together with you.

Before the recent property measures, there are many highly-leveraged owners out there. These are the ones that you should be afraid of because while they can create new high psf in good economy, they can also do the reverse in bad economy.

Singapore has such an open economy that economy cycles will be much more common than other countries like China. The property boom from 2006-2010 was due to a policy mistake of too many immigrants and too little HDB flats. It is not due to astute investments by individual property investors.

The fundamental issue of this boom was started to be addressed in 2009. From 2012, many new HDBs will be completed. The potential buyers and tenants of the private properties will then decrease. Unfortunately this coincides with the TOP of most condos that were sold from 2009 when the perception of high market demand was huge.

[hyenergix]

I think early 2009 was just a correction for the private properties. HDB prices (>80% of properties) were still quite firm and increased gradually except Q1 2009. http://www.hdb.gov.sg/fi10/fi10321p....x?OpenDocument

I bought in 2010 but that was driven by a change in office location. The property wasn't even launched at that location in end 2008 or early 2009, so it is a bit hard to say I missed the boat. I concur that now it is still good to buy for self-stay, particularly for HDB upgraders.

Many sub-sales in fact are better buys than new launch. But re-sales are not for me as properties age very fast in our climate and they have a history which I'm not part of.

[melodies]

It depends on how you define "correction"?
Ardmore II launched at $2500 psf but transacted at $1600 psf or a drop of 36% if this is considered only a "correction" in private property prices then what is considered a "crash"?
If you take OCR, The Quartz transacts at $800+ psf drop to about $5xx+ psf (also about 30% or so).

Correction if => drop of >40% means Crash => drop of >80%?

On the other hand, HDB property prices is a totally different market altogether as there is no crash. in fact, HDB prices has been going up non-stop from 2005-2011 (already 6 continuous years!). How many more years you think it can sustain?

I think early 2009 was just a correction for the private properties. HDB prices (>80% of properties) were still quite firm and increased gradually except Q1 2009. http://www.hdb.gov.sg/fi10/fi10321p....x?OpenDocument

I bought in 2010 but that was driven by a change in office location. The property wasn't even launched at that location in end 2008 or early 2009, so it is a bit hard to say I missed the boat. I concur that now it is still good to buy for self-stay, particularly for HDB upgraders.

Many sub-sales in fact are better buys than new launch. But re-sales are not for me as properties age very fast in our climate and they have a history which I'm not part of.

[hyenergix]

Correction or crash whatever you call it, I'm referring to going back from bubble prices to prices supported by fundamentals. HDB price growth should extend to around 2012 when the supply starts to meet demand.

[azeoprop]

I think the 2009 recession was well managed by the govt, leaving minimal impact to our economy. Many got their pay cut, but there was not much retrenchment. Hence, many were still able to pay their installments and not much fire sales could be found.

If the next recession comes and is similarly managed by resisting retrenchment, you could find very low impact on property prices with fast recovery. However if the crisis epicenter is in asia, it will be difficult to do so.

[Regulators]

There is nothing much to manage in a 2009 recession as asia was largely unaffected by the subprime and collapse of the lehman brothers. There was also minimal pay cuts and job losses during that period and our economy even say growth simply bcoz many of or businesses with china and asian countries are unaffected. I do not think the gahmen could be given much credit for that. if the chinese economy collapses, see what our gahmen can do

I think the 2009 recession was well managed by the govt, leaving minimal impact to our economy. Many got their pay cut, but there was not much retrenchment. Hence, many were still able to pay their installments sms not much fire sales could be found.

If the next recession comes and is similarly managed by resisting retrenchment, you could find very low impact on property prices with fast recovery. However if the crisis epicenter is in asia, it will be difficult to do so.

[teddybear]

Actually still have fire-sales, just not that many, but luckily not many buyers as well, may be because they read condosingapore forum and scare off from buying by all the scary comments by many here such as J-Dog who expect Cosmopolitan to drop <$1000 psf!

I think the 2009 recession was well managed by the govt, leaving minimal impact to our economy. Many got their pay cut, but there was not much retrenchment. Hence, many were still able to pay their installments and not much fire sales could be found.

If the next recession comes and is similarly managed by resisting retrenchment, you could find very low impact on property prices with fast recovery. However if the crisis epicenter is in asia, it will be difficult to do so.