Private housing market continues to surprise

 September 23, 2011

Just when you thought you have finally figured out what influences private home buying, the market throws up another surprise.

The latest Urban Redevelopment Authority (URA) figures show that developers sold 1,348 private homes last month. Although this is down 3.6 per cent from the 1,398 units in July, some analysts, including myself, had predicted that sales could likely slip below 1,000 units amid slower buying during the Hungry Ghost Month and the stock market slide that took more than 15 per cent off the STI benchmark.

Total sales jumped to 1,638 if Executive Condominium (ECs) purchases are included. Last month’s numbers were also achieved despite a new policy that raised the income ceilings for eligibility to buy new HDB flats and ECs, a move that some analysts had predicted would dampen sales in the private mass market segment.

The latest URA data led some property consultants to revise their private homes sales forecast for this year upwards to between 15,000 and 16,000 private homes, excluding ECs. This is close to the 16,292 units sold last year. In fact, I would not be at all surprised if the final numbers are a lot higher than last year’s total.

Only recently, the Real Estate Developers Association of Singapore (REDAS) called on the Government to review the market cooling measures in view of the dark clouds looming over the economic horizon and to make greater use of the Reserve List system in managing its land sales.

But if new housing sales continue at this pace – despite a real threat of a recession that may hit Singapore as early as the first half of next year – REDAS’ fears may be unfounded.

You could argue that any significant scaling down of supply now may result in a resurgence of prices which had moderated for the past several quarters. How do we explain this seemingly endless buying?

One explanation could be that demand is indeed driven by population growth and by the fact that our housing market has been severely under-supplied for many years. But we would be naive if we believe that this is the major reason for the buying resilience in the private housing market.

Last year, I suggested that there was more cash in the market to spend than properties released for sale. If I was not spot on then, I must be now. The latest statistics suggest that more outside money may be flowing into the Singapore property market, which may have more than offset the outflows.

An analysis of caveats lodged revealed that foreigners boosted their share of non-landed home purchases to a high of 33 per cent for the first eight months of this year. This no longer surprises us but what was notable is that it arose mainly from a higher proportion of purchases by non-Permanent Residents, whose share rose from 13 per cent last year to about 18 per cent from January to the end of August this year. The share of Permanent Resident purchases rose by only a single percentage point – from 15 per cent to 16 per cent.

Meanwhile, a quick look in our local newspapers will show property investment opportunities from all over the globe. They might be in the newly-emerging Iskandar region in Malaysia, key Australian cities or major global metropolises such as London and New York.

Most of those on offer are properties in London, which have attracted strong interest in the past year or so. The British pound is weak, currently trading at below S$2 compared with as much as S$3 just a few years ago – making it attractive for buyers here.

More overseas projects are being showcased here as foreign developers know that there are keen buyers here. A director of one agency bringing in such projects said demand is helped by the fact that Singapore property prices are ridiculously high. And the head of a London-based consultancy predicts that Singapore may account for about one-third of all Asian off-the-plan pre-sales in London.

There are no ready figures on the amount of Singapore money flowing out of the country into overseas properties, but judging by the enthusiasm with which such projects are being introduced here, it must be pretty significant. But even such a strong outflow does not appear to have made a dent in home purchases here.

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