Two views to December home sales

 January 20, 2012 

 

Last year, property developers sold an average of 1,300 homes per month. The recently-released December new private home sales figure of 632 is slightly less than half that number. Can we predict that overall home sales will be halved this year? This will be a huge concern for developers – their unsold stock will simply balloon. Or is last month the worst it can get and that conditions can only improve from here?

You could read last month’s figure in two ways. The straightforward reading by most media is that new private homes sales, excluding executive condominiums, plunged 63 per cent from November. But housing agents I spoke to said they had expected a heavier fall after the imposition of the additional buyers’ stamp duty (ABSD).

You can understand where they are coming from. After all, almost every property expert in the market had predicted that a price correction was on the cards or simply inevitable. Even a few developers admitted that the price situation was unsalvageable.

Yet, the fact that 632 purchasers chose to buy in the month when they could have ostensibly got them cheaper a few months later must be puzzling. These buyers seemed to act against good advice, or for that matter, the only advice offered publicly.

At a recent seminar, I told the audience that they had to analyse the market at both micro and macro levels. If you choose to analyse market behaviour purely from the ground level, you will always be puzzled. At the macro level, you would realise that there are few investment alternatives.

Some analysts have said that a price correction would be healthy for the market. I agree. I have never said that the current market is healthy but I cannot say that prices will fall as a result of the ABSD if I cannot see it happening. It can happen if there is a deep recession or if borrowing costs rise sharply and suddenly, but not purely as a result of the ABSD.

At the same time, it is also difficult to see prices rising in the near future as the authorities are continuing to make land available for private housing.

Still, last month’s figure is the lowest in two years and reflects a huge dent on buying sentiment. The announcement of the ABSD on Dec 7 left enough room for those who want to pull out to do so. This would mean the figures would be the first month to accurately reflect the full impact of the ABSD.

I had expected weak sales at similar levels to continue for the next two months but after what happened on Wednesday at the launch of Watertown in Punggol Central, I am not so sure any more. If the sales figures are to be believed, more than 160 of the 250 units launched were snapped up. Had prices been lowered as the developer had indicated the day before? But as the news report pointed out, the project set a new price benchmark for Punggol.

As I often remind my colleagues, the money is out there, waiting to be spent. You need to build a good story line for the buyer to take out his cheque book. News reports also said that more than 90 per cent of the buyers were Singaporeans. Have we seriously under-estimated the pool of first-time buyers? Or were the serial investors out in force?

We should never dismiss the serial investors. They are a resourceful lot. Nothing energises them more than the prospect of making tons of money. Have they drawn up a list of family members, relatives and even friends whose names they can borrow?

I have spoken to some of them – many are outspoken and cocky. They thumbed their noses at the new rules and loudly proclaimed that they will not be beaten. Let me give them some advice – if the robust buying does not weaken, what do you think will happen next?

Yes, more cooling measures.

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