Private housing market: Second wind?

February 17, 2012

When last December’s dismal showing of only 632 private homes sold were revealed in the middle of last month, many were bracing themselves for further shocks in the coming months. They did receive one just two days ago – only, not the kind they expected.

Developers sold 1,872 new homes in January, almost treble the number sold the previous month. Yes, sales were dominated by a few projects but that has always been the case.

Some have written off the robust sales as one-off – attributing the strong showing to two well-located mixed-use projects – which cannot be sustained. Well, it depends on who is doing the buying.

A few have attributed the strong buying to first-timers and second-home local investors who are not affected by the new additional buyer’s stamp duty (ABSD). Well, we know that there are a large pool of such buyers in the market. The trick is to make it affordable to most of them.

What about the “hard-core” investors as some have described themselves? Feedback from agents reveal that their presence at showflats have not diminished.

These hard-core investors are particularly attracted to projects by developers with pricing strategies which protect the investments of early-bird investors.

The only negative from the latest set of figures is the continued low sales to foreigners, judging from statistics provided by the project developers themselves.

But this is to be expected. If you are already receiving a good response from locals, why bother crafting a marketing strategy to attract foreign buyers? That will be saved for a later phase when the going gets tougher and the competition keener.

The new pricing approach adopted by some developers of marking up prices and then giving discounts or absorbing the ABSD appears to have paid dividends.

Looking at the median prices for the popular projects, we can conclude that transacted prices for new homes are definitely trending up. We will have a clearer picture when the National University of Singapore next releases its price index for completed apartments for January later this month.

Should a price decline be recorded again for non-landed properties sold in the secondary market, it may be just enough to offset any rise in prices for new homes.

A liquidity problem?

I have always maintained that the strong buying in our private housing market is largely liquidity-driven. So, it was with great interest when I read the comments of one of Hong Kong’s wealthiest businessman who was in town recently to give a talk at the NUS Business School on “the future of Asia amid a crisis-laden and flattened world”.

Billionaire entrepreneur William Fung – executive deputy chairman of Hong Kong-listed Li & Fung – warned that Europe’s push to recapitalise its banks to contain further shocks to the system could lead to a funding crunch in Asia, but few in Asia are paying attention to this danger.

A fund manager recently pointed out to me the trend of Hong Kong companies, including developers, tapping on the strong liquidity levels in Singapore for funding. At this rate, he warned that we in Singapore might wake up one day to a credit crunch.

More recently, Australian banks raised their mortgage rates independently of the central bank, breaking the practice of recent years. The banks have blamed higher funding costs globally, as the European debt crisis leads investors to demand greater compensation for lending to banks everywhere as well as surging borrowing costs in their domestic market.

When Chinese developer Qingjian Realty announced plans to raise up to S$500 million in a Singapore listing by the beginning of next year, it really made me sit up.

Are we letting our guard down and taking our low borrowing costs for granted?

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