Singapore housing market a safe haven amid pandemic

HOME sales in Singapore so far in this pandemic-ravaged year have exceeded expectations amid a lower-for-longer rates environment and a still-low unemployment rate - a phenomenon also playing out in some other countries.

Cash-rich buyers have pushed new homes sales for the first 10 months of 2020 to 8,021, as the unemployment rate rose to 3.6 per cent in September from 3.4 per cent in August. Economists think the unemployment rate will stay sub-4 per cent for the full year. The 8,021 volume is 4.5 per cent lower than the 8,401 units sold in the first 10 months of last year.

Projections for full-year sales range from 9,000 to 9,500, which some find comforting given the current health and economic crisis. Last year, developers sold 9,912 units.

With the strong volume, some expect that private residential property prices for 2020 as a whole may end in positive territory after prices rose 0.8 per cent quarter-on-quarter in Q3, nudging the overall price index up 0.1 per cent year-to-date. In comparison, prices increased by 2.1 per cent in the first three quarters of last year.

The price increase is encouraging given the extent of uncertainties in the macroeconomy and job market, said Christine Sun, head of research & consultancy at OrangeTee & Tie.

"The property market beat expectations as it managed to avert a major price correction during the current pandemic that is considered to be one of the most severe health and economic crisis in recent decades," she said.

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In comparison, prices posted four consecutive quarterly declines during the 2008 Global Financial Crisis and 10 consecutive quarterly decreases during the 1997 Asian financial crisis, she said.

Various measures, such as allowing borrowers to defer their loan repayments, and temporary relief measures, such as granting a waiver of extension charges of up to a total of six months for developers applying to extend their existing completion and/or disposal deadline, have probably prevented homeowners and developers from slashing prices to move sales.

The year started off well but the "circuit breaker" almost brought sales to a standstill with 277 transactions inked in April, a monthly low not seen in many years. The previous low was in December 2014, which saw 230 transactions.

Confidence returned subsequently and takeup rebounded strongly to sales of 1,083 in July, followed by 1,258 and 1,329 in August and September respectively.

October's poor showing of 642 was due to buyers holding back on purchases following the clampdown on the reissuing of options to purchase (OTPs) by developers, analysts reckoned.

The OTP tightening to prevent market distortion was announced on Sept 28 and gives the impression that any incipient froth is nipped in the bud.

The new conditions included restricting developers from providing upfront agreements to buyers to reissue the OTPs, restricting developers in the reissuing of OTPs to the same buyers for the same unit within 12 months of the expiry of the earlier OTP, and requiring that developers inform buyers of this condition upfront.

In the past, OTP validities could be extended for up to eight weeks, or reissued upon expiry. Consultants say the projects most affected by the tightened rules are likely those targeted at Housing Development Board (HDB) upgraders.

These buyers must now sell their HDB flat first, pocket the proceeds, and then rent a home while waiting for their new homes to be ready.

HDB upgraders are a goldmine to developers, and they buy homes in the more affordable rest of central region (RCR) but especially in the mass-market outside central region (OCR).

To paraphrase Mao Zedong, HDB upgraders hold up half the private condo market. Total sales for the OCR (new and resales excluding executive condominiums) made up 47 per cent or 6,565 of total homes sales of 13,980 in the first nine months of this year. (Executive condominiums are considered public-private housing hybrid.) HDB homeowners who recently completed their five-year minimum occupation period (MOP) in Built-to-Order Flats are now eligible to sell their units and use the gains to upgrade to condominium homes, said Leonard Tay, Knight Frank Singapore's head of research.

There were 25,138 HDB flats sold in 2014, and 23,445 in 2015. Those flats sold in 2014 would have completed their five-year MOP by now; those who got their HDB flat keys in 2015 will complete their MOP some time this year.

One trend that has got the market sitting up is the number of wealthy buyers gunning for OCR homes. Last quarter, 168 non-landed homes in OCR were transacted at S$2 million and above, said Ms Sun. This is much higher than the 38 units sold in Q2 and 58 units sold in Q1 of this year.

It is also higher than the 54 units transacted in Q3 2019. Of the 168 units transacted last quarter, 35 units were at Parc Clematis, 24 units at Treasure at Tampines, 12 units at Seaside Residences, and 10 units at The Florence Residences.

In the resale market, the biggest quantum paid for a mass-market condominium transacted in Q3 2020 was a 428 square metre (sq m) resale unit at The Trilinq that was sold for S$4.8 million or S$1,042 per square foot (psf) in September. In August, a resale unit at The Tembusu, which was a 361 sq m freehold condominium sold for S$4.6 million or S$1,184 psf.

The pandemic has brought home the safe haven that is Singapore. And for some, it is the only asset worth owning.

For Asians, property is a very important asset, said Alfred Chia, chief executive of financial advisory firm SingCapital.

"In addition to being a good hedge to inflation, it is our culture to channel our hard earned income into a physical asset we can feel and touch. It is also very important for retirement planning as property ensures we have a roof over our head, and can also be part of our legacy to pass on to the next generation," said Mr Chia. In Singapore, it is even more apparent as the value of property - HDB or private - has appreciated greatly over the years, he said.

With home ownership beyond 90 per cent, it is certainly a very important asset class for many of us, and it is not unusual that some only invest in property, though from an investment portfolio perspective, they have too much exposure in physical properties, added Mr Chia.

One couple approached him for advice with their property purchases and loans after they sold their HDB flat in 2015. Equities did not appeal for them. Both, aged 40, were earning S$15,000 a month with stable employment prospects and had accumulated much savings.

The husband bought a property valued at S$2 million and took a 25-year loan for S$1.6 million at 1.5 per cent interest. The monthly instalment was S$6,398.

The wife bought a S$1 million home and also took a 25-year loan for S$800,000 with the same interest rate of 1.5 per cent, and her monthly instalment was S$3,199.

She bought a second property in 2017 worth S$900,000 and borrowed S$450,000 for 20 years at 1.5 per cent interest rate which worked out to monthly instalments of S$2,171. She had to pay S$63,000 additional buyer's stamp duty which is levied on a second home purchase.

They have a big housing loan due to leverage, noted Mr Chia, and they need to be confident about their employment.

Another risk will be premature death and critical illness that will disrupt loan repayment, though the latter can be mitigated by insurance, he added.

"On the other hand, if they have a long-term holding period and can rent out their investment properties, the tenants will be servicing their home loan," he said. "At age 65, their loan will be fully paid and they can continue to receive rental as passive income. As long as Singapore continues to enjoy economic growth, property value should be able to ride on the growth in our land-scarce country."

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