The property market - is it a-turnin'?

Singapore

FLASH estimates released on Monday for Singapore's private housing sector could show the first increase after 15 quarters of decline. This is what most analysts are expecting - although the view has its dissenters as well.

In notes to clients this week, both OCBC and Morgan Stanley said that they expect the first instance of a property price upturn in the third quarter of 2017, marking the turn of the property cycle.

Morgan Stanley forecast a 0.8 per cent quarter-on-quarter rise in the private residential property price index, versus a 0.1 per cent fall in Q2.

OCBC Investment Research said: "We also believe that the bottom is actually behind us, not shortly ahead as consensus states. Specifically, our view is Singapore home prices hit their cyclical trough sometime in mid-June 2017."

In an interview with The Business Times on Friday, Lee Wee Liat, BNP Asia-Pacific head of research for financial institutions and property, also expects private home prices to rise 10-15 per cent over the next 12-15 months. On when it would start, he said: "As early as this or next quarter."

He expects the recovery to begin with Singapore citizens returning to the market first. Later, when foreigners, particularly the mainland Chinese, become persuaded of the price recovery, they too will re-enter. At that time, he expects Singapore private home prices to surge another 20 per cent.

"There isn't going to be an impact on them (the foreign buyers) if they expect prices to increase. Look at Hong Kong. It has a 30 per cent stamp duty (for foreigners buying Hong Kong property), but the percentage of mainland Chinese buyers in Hong Kong properties continued to increase from 10 per cent two years ago to about 25 per cent now. This is because they expect home prices in Hong Kong to go up as much as 50 per cent. That is why they feel it doesn't really matter if you pay 30 per cent; this will be transfered to the next buyer buying from them. The same may happen in Singapore if they start to see prices coming back."

Other reasons cited for the expectation of a recovery include the substantial growth in Singapore's household income of about 6-7 per cent in the last 10 years, amid income growth and restraint among Singaporeans from buying property, he added.

Another is improved sales volumes and take-up rates in the primary market, and higher prices at new launches this year.

OCBC Investment Research noted, for instance, that total new home sales in July and August rose 35 per cent year on year to 3,672, while the take-up rate (ie total sales over total launches) also improved to 193 per cent, from 131 per cent over the same period last year.

But amid the sea of bullish sentiment is a minority of cautious bears, such as Ku Swee Yong, chief executive of International Property Advisor, who this week also released a paper challenging Morgan Stanley's April forecast that Singapore home prices are on track to double by 2030.

His prognosis is surprisingly sombre: "We are likely to see property prices dragging along on a protracted downturn for several more years before recovering."

Speaking to BT, he said: "I think I have in the last two months become the one and only person in the market who believes that property prices will go down."

He cited three reasons for his pessimism. The first is the weak job market. In the second quarter of 2017, total employment fell by 7,900 (excluding foreign domestic workers), the second straight quarter of contraction, due to drops in work permit holders in construction and manufacturing.

The second is the slow growth in Singapore's population, which expanded by a mere 0.1 per cent - or about 5,000 - to 5.6 million as at June this year, chiefly due to the decrease in the number of work permit holders. All these will affect housing demand.

The final reason is his anecdotal experience with banks that showed no improvement in the valuations they gave for resale properties. "The data right now is just not tallying with how bad the situation is and we are not helped by some of these forecasts," he said.

If one had to trace, the start of sentiment brightening in the sector seemed to follow the government's relaxation of seller's stamp duty (SSD) measures in March this year. Following that tweak, homeowners who buy houses need to wait only three years instead of four to avoid the SSD when they sell their properties. If they cannot wait, they will also pay less in tax - some four percentage points less - compared to homeowners who bought their properties previously.

Mr Lee said that although it was only a "slight tweak", it had managed to unleash a lot of pent-up demand. Since then, land bidding among developers has also turned aggressive, and more home owners are gunning for collective sales. "What then is the amount of potential buying (that could come about), backed by strong income and wealth growth?" he said.

The estimates will be released by the Urban Redevelopment Authority on Monday morning, with the official statistics slated for Oct 27.

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