http://www.businesstimes.com.sg/opin...-runaway-train
EDITORIAL
Be mindful nascent recovery in home prices doesn't turn into runaway train
Fri, Mar 09, 2018
If anyone is in doubt that the property market is roaring back, he needs to look no further than last week's tender for an executive condominium site at Sumang Walk in Punggol.
The tender drew 17 bids. Each and every one of them was higher than the previous record set in July 2013 for the Lake Life site in Tao Ching Road near Jurong Lake. The top offer for Sumang Walk was also 64 per cent higher than the winning bid for the Anchorvale Lane site in August 2016, which was the last EC tender prior to last week's.
Analysts have estimated the breakeven cost for Sumang Walk to be above S$1,000 per square foot, higher than recent new EC transactions in the area. It is not unreasonable therefore to expect the average selling price for this project to be 20-30 per cent higher than previous ECs. This is worrisome as the hunger by developers for residential sites has filtered down to the hybrid housing market and raises questions about whether the series of cooling measures introduced by the government between 2009 and 2013 remain effective today.
To recap, private home prices fell by about 11 per cent by the second quarter of 2017 from its peak in the third quarter of 2013 after the total debt servicing ratio was introduced in 2013. But the market has regained its poise since the middle of 2017.
Two consecutive quarters of gains in the second half of the year meant that private home prices posted a one per cent rise for the whole of 2017. The property industry has downplayed this, with key players taking great care to describe the recovery as nascent - a subtle message, perhaps, to the authorities to let market forces run their course and not interfere prematurely.
To be sure, a recovery in home prices is not undesirable. It is in the interest of Singapore that prices remain on a long-term uptrend that coincides with a thriving economy. But home price rise should be gradual and sustainable to avoid creating unnecessary angst among Singaporeans. The past two rallies in the property market - from 2005 to mid-2008 and then 2010 to 2013 - were undesirable as they were too sudden, too soon.
Could we be on the cusp of yet another sharp run-up?
Unlike the last rally which was initially driven by end users amid a supply crunch, the current optimism in the residential market is led by over-eager developers seeking to replenish their land bank. Indeed, some developers are said to be holding back their launch-ready projects on expectations that the units could likely fetch higher prices down the road, in tandem with costlier land prices. Meanwhile, collective sales efforts are mushrooming as home owners try to make hay while the sun shines.
At the last count, there are some 120 private estates in various stages of seeking a collective sale. This excludes 10 developments that have already successfully sold enbloc so far this year.
In contrast, 2017 saw a total of 29 residential collective sales - including commercial developments with residential units. The 2017 numbers were already the highest in a decade and significantly up from just three such deals in 2016.
Even if a small fraction of the 120 potential enbloc deals come to fruition, the effect on property prices is to make them sticky-down.
Successful sellers, flush with cash, may further drive up prices in their search of a replacement home while those whose homes have not yet come under the enbloc hammer will hold firm in their asking price, hoping that their day in the sun will also come.
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Originally Posted by azeoprop
