2013: Market crash or ghost towns?

(2011-06-09 22:40:15) 下一個

In the past few months, there have been more warnings of a glut in the private housing market and the calls have become more strident.

More recently, this warning has been blared out as one of several events that could lead to the perfect storm that the market is headed for. This is the worst-case scenario which could unfold as early as 2013 if all the events – more supply, falling demand and higher interest rates – occur together to trigger a market crash.

Why 2013? Well, this is because an unprecedented number of housing units are expected to enter the market then. Official figures show that 32,359 units will be completed over 2013 and 2014. This is 85 per cent more than the 17,501 units expected this year and next year.

Meanwhile, demand from foreign buyers could fall as concerns about high housing prices and the influx of foreigners were magnified during the General Election and will be a catalyst for the review of immigration and housing policies.

Foreign buyers have been a big boost to the local property market in recent years. More recently, by one industry estimate, they accounted for a high 16 per cent of new housing sales in the first quarter of this year.

Interest rates in Singapore are presently at record lows because lending rates here track United States monetary policy. That has allowed buyers to pay less than 1 per cent interest on the first year of their mortgages. Most banking analysts, however, expect interest rates to begin rising later this year.

Finally, while growth forecasts for Singapore over the next five years at 4 to 6 per cent annually will underpin support from local buyers, a major unforeseen external crisis could still lead to a market crash.

How realistic is this scenario? For one, there are limits to how quickly the construction sector can expand its capacity to meet all of the new building demand. Remember, we are also ramping up our public housing stock and building ahead of demand. So, although the numbers will still be high compared to before, the supply will be more spaced out and not as announced.

The private residential leasing market also appears to be healthier than expected. Already, the number of leasing contracts for the first four months of this year is about 8 per cent higher than the corresponding period last year.

However, a word of caution here. Judging from the feedback I get from housing agents, I suspect more and more of the new tenants are locals and not expatriates. This shows that a growing number of locals are taking a position on the housing market cycle – they are renting for the time being, waiting to pick up units when prices correct.

As for interest rates rising this year, when have we heard this line before? About a year ago, I suspect, or even earlier. In fact, rates have declined further since the first call.

Yes, there is much stronger resistance from US law-makers to another round of quantitative easing but what happens if the US economy does not pick up in the second half of the year? Do we expect President Barack Obama who is seeking re-election in 2012 to sit back and do nothing? Personally, I would not bet a single dollar on it.

More and more, the US Federal Reserve’s experience is beginning to be like that of the Bank of Japan, which has engaged in roughly two decades of quantitative easing. It is beginning to look like US rates will stay unusually low for far longer than many investors expect.

With the Fed, Bank of Japan and European Central Bank having rates at or near all-time lows, Asia, including Singapore, will be on the frontline of the struggle with cheap money and unprecedented liquidity.

Even if a private housing glut were to occur in 2013 or earlier, there is little incentive for the majority of investors to sell off their properties so long as housing loan rates and holding costs remain low. And if there is little or minimal change to our private housing policies, I suspect we are more likely to see ghost towns in 2013 than experience a market crash.

By Colin Tan – head, research and consultancy, at Chesterton Suntec International

What drives private home purchases …

Private home purchases reached record highs last year and have continued to remain strong this year. Indeed, had the Government not imposed the fourth round of property market cooling measures in January, the home buying frenzy might have hit unsustainable levels on rampant speculation.

One often wonders what drives the buying fervour. Given the euphoria, could traditional demand drivers have changed in recent times? Home buyers’ psychology could have been affected by structural transformation in the society, economic development and lifestyle progression.

Traditionally, there are three main reasons why people buy private residential property – upgrading, investment and speculation.

The first group consists of those who wish to move from public flats to private homes to meet rising housing aspirations for the family. These Housing and Development Board (HDB) upgraders often look to own a private condominium for long-term occupation.

Meanwhile, there are those who already own a private home for occupation but are still financially able to afford additional properties with investment potential. This investor group includes singles who are well-established in their careers and are well-versed about the intricacies of property ownership and investments. Some singles are able to invest in multiple properties as they are financially “commitment-free” and private homes are seen as an attractive option for wealth accumulation.

Finally, there are speculators who seek to time property acquisitions and disposals to maximise capital gains. The recent decade has seen the evolution of speculators to “specuvestors” – essentially those who have the ability to hold residential properties for investment, although their ultimate motive is speculative gain.


In the latest round of cooling measures, speculators and investors have seemingly been priced out due to the imposition of harsh sellers’ stamp duties and lowering of the loan-to-value ratios. New home sales in the first four months of this year, however, have been healthy even if moderated. The common interpretation is that there is robust demand from owner-occupiers, backed by a fundamentally sound economy and lots of liquidity.

What can we read into this sustained owner-occupier demand? What is the mindset of these buyers? There are key new societal underpinnings that have led to an increasing desire for long-term private home ownership. They have driven buyers to private homes beyond the conventional reasons of property ownership.


While it is very common for an HDB flat owner to upgrade to a private home for a better living environment, the decision may not be a rational one among all upgraders There may be some who buy beyond mere housing aspirations and financial ability, feeling that a private residential address could reflect a status elevation among colleagues, peers and relatives. Such buyers need to reflect on the worth of doing this and to proceed with such a decision only if a property’s potential can be identified.


There are also some who see the upgrade from an HDB flat to a private home, or from a private residential property to a better one, as an opportunity to realise the price appreciation of the current dwelling unit. The buyer may be making use of this windfall for another property, which can potentially appreciate and add to his wealth.

But this group of buyers should critically assess the risks, especially whether the newer property can deliver comparable returns, as well as the further financial commitment to a costlier property.

Each property is unique and future market conditions may be radically different with new underpinnings. The success of the current or previous property may not necessarily be replicated and a shrewd property buyer will have to be forward-looking instead of placing his bets based on historical achievements.


New residential properties are often bundled with sophisticated product design and innovations, which attract home buyers. If there are sufficient comparable properties in the vicinity, the home buyer can determine the price premium for such features. In the absence of sufficient comparable developments, the home buyer can ascertain the worth of such features based on general market sensing or, at the very least, how critical these features are. While new concepts are not tried and tested and require more confidence from higher risk-takers, consumer taste is increasingly sophisticated and there is potential for these products.


Intense competition in the marketplace and the workplace has raised the stress levels of many white-collar professionals. Some of these see a private home as offering the soul an intimate connection after working hours. Instead of spending personal time at lifestyle establishments, they choose to relax in a dwelling they call their own.

Moreover, there are many singles who yearn for a place of their own but are disqualified from buying an HDB resale flat because they are under the age of 35. Other young singles may see a private property as a better match for their housing expectations. Such buyers are likely to purchase smaller units and can compromise space for price and functionality.


Private properties can also double as feasible home offices. Many small businesses see a private residential location as an appropriate business address compared to HDB flats. With rising entrepreneurship and higher retail and office rents, business owners are increasingly recognising the pay-offs of owning a property versus renting business premises. Some private residential properties – especially smaller apartments and SOHO units – have thus found their niche from such buyers.


Whether the motivation is aspiration-led or needs-driven, the potential home buyer will have to ascertain his financial capacity and critically examine the potential and benefits of the property. For example, an established professional who seeks a place for after-hours personal development will have to reflect on the worth of a purchase from the primary market, for he will not be able to enjoy the benefits of the property until about three years later when it will be completed. Meanwhile, he will have to service the property loan, which may constrain his spending on other comforts.

Buying a private home requires a huge amount of capital which can only be justified by the property’s value proposition.

This is all the more so if financing the property will displace the buyer’s enjoyment in other aspects of life or affect business cash flows.

A buyer can have more certainty if he proceeds with a clear mind and with the necessary preparation, particularly where there is now little recourse via reselling the property since harsh sellers’ stamp duties will apply within the initial years of the purchase.

By Ong Kah Seng – senior manager, research – Asia Pacific at Cushman & Wakefield

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