Property facing demand-supply mismatch but observers see limited price downside

Commentators say price cuts will be moderate, with more buyers expecting stable or only slight falls in prices; demand from en bloc millionaires to stay resilient

Fri, Jul 12, 2019

NATALIE CHOY


WHILE the current situation of high supply and subdued demand in the property market may be challenging, observers say that the downside may be limited as private home prices look towards stabilisation.

Cooling measures introduced in July last year have "remained a restraining factor" for both foreign and local buyers, said Chia Ngiang Hong, president of the Real Estate Developers' Association of Singapore (Redas).

He was speaking on Thursday at Redas' property market update seminar for 2019.

He said that the bruising impact of heftier additional buyer's stamp duty (ABSD) and tighter loan-to-value ratios is further compounded by Singapore's reduced full-year growth estimates, as well as global economic uncertainties amid trade tensions.

Based on data from the Urban Redevelopment Authority, some 44,000 private housing units remain unsold.

OCBC economist Selena Ling said that these unsold units may take three or more years to clear, and pointed towards softer demand and smaller profit margins.

"I don't think we've felt the full impact of all the cooling measures yet. The take up is still weak, despite new launches," she told the audience.

"Price cuts may be expected as developers rush to get inventory out the door," she added.

The remissible ABSD for residential developers was hiked to 25 per cent from 15 per cent from July 6 last year.

If a developer does not complete the project and sell all its units within five years of acquiring the site, it will have to pay the 25 per cent ABSD with interest.

But, price cuts, if any, are likely to be moderate amid "an uptick of people who expect stable or slight declines" in prices, said Ms Ling.

Results from OCBC's property poll in May 2019 showed that 58 per cent of customers believe prices will largely remain flat, up from 42 per cent in a similar poll in January.

As of Q1 this year, 54 per cent of developers' expect prices to remain unchanged, up from 45 per cent in the previous quarter.

"With such muted sentiments, it seems like there has been a small shift towards price stabilisation," said Ms Ling.

"This is what the cooling measures are for; they are here to ensure sustainable prices, not bring them down," she added.

The demand from en bloc millionaires is also expected to remain largely resilient.

From a macro perspective, Colliers International's head of research for Singapore Tricia Song said the property market could still enjoy "benign growth" if the US Federal Reserve follows through with its widely expected interest-rate cut at the end of the month.

"Singapore's rates would definitely be looking down as well, and that is always a positive thing for the property market," she said.

Colliers estimates this year's overall property investment sales in Singapore to match the S$38.2 billion in 2018.

The optimistic sentiment comes on the back of increased capital flows into real estate.

Globally, the total investment volume in this sector is projected to reach US$2.5 trillion by 2020. "Close to half" will be concentrated in the Asia-Pacific region, said Ms Song.

The office sector, in particular, has enjoyed promising demand here.

New projects this year experienced "robust pre-leasing", said a recent report by Cushman & Wakefield.

The revamped Funan Mall achieved a 98 per cent pre-commitment rate, with the south office block fully leased to the Attorney-General's Chambers, the Singapore Department of Statistics, and the Smart Nation and Digital Government Office.

"Investors here favour the office sector, which has actually strengthened despite the global slowdown," said Ms Song.

"Although the residential side has seen lower collective sales, we expect the commercial deals to pick up the slack."

Amendment note: Due to an editing error, an earlier version of the headline for this story incorrectly said that Redas sees limited price downside. It is in fact the guest speakers at the seminar who made this comment, not Redas. The article above has been revised to reflect this.