Singapore Real Estate Market Review - January 2008

The Myth, Reality and Awkwardness of 2008

I said in the previous seminar on 23 July 2007 the following:

§ The two-track economy
§ Sub-sale to concentrate in new projec
§ En bloc sale become ‘End’ block sale
§ The return of the mass market new homes (caution needed for those thinking of flipping)
§ Look out for stock market correction

I also said that “next to get the chop will be Deferred Payment Scheme” and for the specific market environment I recommended that agents should say: “There are some undercurrents” in this market when asked by customers about the market situation. And I defined “undercurrents” as any sudden moves and contingencies that would transform the landscape of real estate investments completely.

Most of the forecast, except that one about sub-sale were correct and I have proven once again to be ‘worth a listen’. Now, let me take you through the market performance in the past six months by way of answering the following questions and then do a projection of the real estate market in the next six months:

(A) How has the market performed? (B) How different is it this time than last? (C) What do all these mean to real estate agents in general? And where do we go from here?

A – How Has the Market fared? 

(1) Private Home Prices Jump 31% in the whole of 2007

From October up to end of December 2007, Singapore private home prices rose 6.6%, compared to 8.3% in the third quarter. For the whole year, home prices climbed 31% over 2006.  Take up rate for new homes hit a record 15,000 new homes in 2007. It is a 34.5% growth over the 11,147 new homes sold in 2006.

Here are the price movements of condos and apartments in the last quarter of 2007 (Oct – Dec):

§  In the Core Central Region, prices increased 7.0% (8.3% in the third quarter) on a quarterly basis in second quarter. This region comprises the traditional prime districts 9, 10 and 11 and Marina Bay and Sentosa.
§  In the Rest of Central Region, prices increased 7.3% (7.9% in the third quarter) on a quarterly basis in the second quarter. This region comprises locations like Queenstown, Bukit Merah, Outram, Bishan, Kallang and Marine Parade.
§  Outside Central Region, prices increased 7.5% (7.9% in the third quarter) in the same period. This region comprises locations like Woodlands, Jurong, Hougang, Ang Mo Kio, and all the outlaying areas.

 Myth or Reality (1) : For the whole of 2008, barring any miracles, the take-up rate of new homes should be less than 10,000 given current uncertainties in the global economy. With Singapore’s domestic economy continued to be strong (driven by the ongoing boom in the construction sector) and the allure of Singapore as a safe haven and a global financial hub for a bigger portion of private wealth, the upside is still good.

The booming domestic sector should continue to support the sale of mid-end and mass-market homes which are expected to experience a healthy growth of 10% to 15% price rise. For the luxury homes segment, prices and take-up rate are expected to moderate, having gone through a vintage year of fast growth.

 Awkwardness (1) : Sale volume and prices may continue to grow in 2008 on the back of sustained inflow of foreign funds seeking safe haven outside the United State of America, but buying activities may be restricted to institutional and corporate type of portfolio investments, such as bulk purchases (e.g. overseas property funds acquiring a number of blocks in a project), swop deals (e.g. between developers) and marriage deals (e.g. local and overseas joint ventures buying back own projects for mid-term investment income). Such purchases usually occur in selected areas like the Core Central Region and the outskirt of Orchard Road areas.

(2) Condo / Apartment Sales and Foreign Ownership of Private Homes in 2007

First half private property sales were 19,801 units. Foreigners accounted for 2,763 or 13.95% of total transactions.

Table 2 – SECOND HALF 2007 Total Sale of private apartments/condos (including sub-sales)

Second half private property sales were 11,666 units. Foreigners accounted for 1,986 or 17.02% of total transactions.

In the second half, the absolute numbers of foreign purchasers of condo / apartments were down. However, the percentage of foreign purchasers actually went up 2.02 percentage point. It means that while the overall purchases were reduced due to one reason or another, the number of foreign purchasers did not change drastically. It was reduced by only 1,103 units (3,205 – 2,102) for the whole year.

Myth or Reality (2) : Although the overall private home sales went down in the second half of 2007, foreign ownership of Singapore private homes gained in percentage term, especially for high-end homes.

The Million Dollar Question now is: “Will the trend of ‘sustained foreign buying’ continue in the first half of 2008?”  From the appearance of the statistics, the answer has to be a YES. This is because of the following reasons:

(i) The threat of an economic recession in the US in 2008 looms larger each time a global financial institution made a revelation of massive write-down in relation to its exposure to the US sub-prime mortgages (e.g. UBS, Citigroup, and Merrill Lynch).
(ii) The value of US dollar will continue to weaken against Singapore dollar throughout the year, and Singapore will continue to be a safe haven for international funds.
(iii) The European economy is similarly under the weather due to its symbiotic relationship with the US market.
(iv) The Chinese real estate market has shown signs of over-heating and the risks of investing there have grown much larger.

Awkwardness (2) :  With limited upside of less than 10% projected price growth, the buying activities may continue to thin, which means the percentage gain of foreign ownership will continue to rise amid smaller business volume for real estate agents.