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Thread: Firm outlook for private housing market belies risk factors

  1. #1
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    Default Firm outlook for private housing market belies risk factors

    Firm outlook for private housing market belies risk factors

    Some analysts flag possibility of fresh cooling measures if developers start bidding aggressively for land

    Thu, Dec 31, 2020

    KALPANA RASHIWALA


    THE outlook for private home prices in 2021 remains firm with most property consultants forecasting prices will appreciate slightly more than in 2020.

    A brighter economic outlook, easing of travel restrictions and a reduction in the inventory of unsold private residential units along with low interest rates all bode well for the private housing segment.

    On the flip side, observers flagged several factors that may weigh on the market in the next 12 months. These include a deterioration in the employment situation, a potential resurgence in Covid-19 despite a vaccination programme, and even potential government intervention in the property market. Fresh cooling measures could be rolled out, for instance, if developers get carried away with bidding for land including collective sale sites - given that high land bids are typically followed by property sellers pushing up end-unit prices.

    Property consultants polled by The Business Times generally expect the Urban Redevelopment Authority's (URA) benchmark overall private home price index to post growth ranging from zero per cent to 4 per cent in 2021.

    The index is expected to end 2020 either unchanged or inch up by no more than one per cent, after rising 2.7 per cent in 2019.

    In the non-landed housing segment, the suburbs or Outside Central Region (OCR) is expected to continue to be the outperformer, due to affordability and better demand-supply dynamics.

    Wong Siew Ying, research head at PropNex, said: "There is still healthy demand for mass-market private homes by a sizeable group of owner occupiers and HDB upgraders."

    The OCR made up 41.0 per cent of total new private homes sold in the first nine months of 2020 but just 32.3 per cent of the total 26,483 unsold uncompleted units from projects with planning approvals as at end-third quarter of 2020, she noted.

    Analysts expect the prime areas or Core Central Region (CCR) to come under the weight of substantial oversupply. That said, Huttons Asia research director Lee Sze Teck said the resumption of travel may be the wild card to bring in more foreign buyers, which will support demand for upmarket homes.

    While URA's private home price index for Q3 2020 was still 0.1 per cent higher than for the fourth quarter of 2019, its rental index for private homes slipped 0.7 per cent over the same period. This was despite lower private home completions this year.

    The rental market is expected to remain weak amid soft economic conditions. JLL Singapore senior director Ong Teck Hui said: "The continued tight policies on intake of foreigners including stricter Employment Pass and S Pass criteria, coupled with job uncertainties, are likely to affect the hiring of expats, adversely affecting leasing demand. Additionally, the expected increase in completion of private homes in 2021 might add more downward pressure on rents." The mass-market and city-fringe areas may perform better given more affordable rents, Mr Ong added.

    Agreeing, CBRE's head of South-east Asia research Desmond Sim said the OCR rental market may experience some positive spillover effect from expats downgrading, particularly if there is an increasing number who may face tighter budgets.

    On the other hand, "private residential properties in the CCR, generally residing on the higher-end rental market, will face greater pressure as landlords will have to balance between rental expectations and occupancy", he pointed out.

    Savills Singapore executive director Alan Cheong said Covid-19 is resulting in structural unemployment shifting downward to an earlier age group, to those in their early 40s. "The economic landscape is undergoing a deformation. Some industries that were previously doing well are doing less well in the Covid environment, while some industries that were not doing well in the pre-Covid environment are now doing well.

    "And there are also industries that are newcomers to this economic landscape - and they are flourishing. That said, it will take time for people in the successful industries to build up their wealth - before they launch into buying private residential properties."

    He flags an existing group of mortgagors who were previously considered as safe, low-risk borrowers but who may find themselves out on a limb, especially when more corporates in Europe have to make hard decisions early next year. "Some may downsize significantly or fail to survive past this winter.

    "There is still light at the end of the tunnel but unlike previous crises, the light at the end of the tunnel is of a different colour and intensity."

    On a more positive note, Mr Cheong points to an incipient trend of some baby-boomers, faced with an empty nest, downgrading from private homes to HDB resale flats.

    "Flush with cash, these senior downgraders may drive up the value of better-located HDB resale flats. This in turn helps HDB dwellers to upgrade to private condos. Thus, an ageing population may counteract the negative impact of Covid-19 and so support asset prices up to the medium term."

    The firm private home prices for 2020 come on the back of still-healthy developers' sales, despite the Covid-19 pandemic hitting the economy. Developers have moved some 8,791 new private homes in the first 11 months of 2020. Huttons's Mr Lee expects the year to close at 9,700-odd units. This would not be a bad showing at all in a pandemic-hit year; the figure for the whole of 2019 was 9,912. Strong demand from local buyers boosted home sales after the "circuit breaker" partial lockdown to stem the Covid-19 transmissions.

    PropNex CEO Ismail Gafoor said Singaporeans accounted for about 84 per cent of new private home sales in the first 11 months of 2020 - the strongest turnout of local buyers in 15 years, based on URA Realis data. Buyers were encouraged to enter the market given sensitive pricing by developers and low interest rates, he added.

    Edmund Tie & Co's senior director of research and consultancy Lam Chern Woon said the resilience in the private housing market in 2020 reflects the healthy balance sheets and liquidity that households have built up over the years.

    "A two-speed market is evident with a sector having significant dry powder, while others have seen a reduction in purchasing power amid job or salary cuts."

    Mr Lam also observed that the primary market has fared better while the resale market has seen some strains of distress selling.

    A seasoned developer said it remains to be seen if the recent string of successful launches - including Clavon and Penrose - will be replicated in 2021. The two projects had done well because of their attractive launch pricing.

    However, many upcoming ones are sites in the CCR and Rest of Central Region (RCR) that were bought at relatively high prices in 2017 to the first half of 2018. "Add to this higher construction costs and there may be a limit to how attractively developers can price these projects at launch," the developer added.

    Property agents have been saying how resilient private housing demand and prices have been this year. A point to note, however, is that until late September, some sales were facilitated by the practice of some developers continually re-issuing options to purchase for the same unit and to the same buyer - tempting financially-tight buyers (including some HDB upgraders) to enter into a purchase. That practice is no longer allowed.

    Another point to note is that the firm prices this year to some extent could have been due to the high commissions agents have been receiving from developers and the practice of some agents "subsidising buyers", as one observer puts it, by passing a chunk of the commissions to them indirectly, to avoid detection. This could have nudged up the prices developers report to URA weekly and which are used to calculate its private home price index.

  2. #2
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    Default Re: Firm outlook for private housing market belies risk factors

    A couple of scenarios that I can think of:

    1) Open up Govt GLS more aggressively so that construction activity outside of their own builds (counter shortfall from canned HSR) will carry on. Money flows around the economy as if HSR is built.
    2) Let en-bloc start again to attract foreign funds asap, allow current lenders to breathe from low interest rate environment. Cushion some NPL and counter low rates from higher $$ volume.
    3) Manage the unemployment first as first priority, let market decide the absorption rate. Watch and see attitude.
    4) Bolder move: Allow en-bloc and GLS to allow developers to build aggressively for recovery in 2-3 years time. Move property prices up with volume anticipating foreigners to return and buy.

    2 cents,
    PropVestor

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