Property cooling measures unlikely to be removed before 2017, say Singapore property analysts

HOMEBUYERS and investors who have been waiting on the sidelines for the government to tweak the property cooling measures before committing to a purchase will have to wait a little longer.

“I think the earliest the property cooling measures could be tweaked will be in 2017 because we have not quite reached the double-digit price correction that the government wants,” says OCBC head of treasury research and strategy Selena Ling. She was speaking at the Real Estate Developers’ Association of Singapore (Redas) property market update seminar on July 12.

Market speculation was that the property cooling measures could be relaxed soon, especially for borrowing limits on the second or third and subsequent residential property purchases. Hopes were raised after the Monetary Authority of Singapore eased car loans in May, just three years after introducing restrictions in 2013. “However, that does not seem to be the case,” says Ling.

She also sees developers facing greater pricing pressure owing to the strong supply pipeline and falling demand as a result of the slower creation of new households, an ageing population and tighter manpower policies.

Price cuts of 5% to 25%

According to Redas president Augustine Tan in his opening address, the pipeline of new supply stood at 57,597 for private residential units and 12,077 for executive condos (ECs) as at end-May. Meanwhile, unsold units total 15,000. Developers’ annual new home sales totalled 7,316 and 7,440 units in 2014 and 2015, respectively. The sales reflect a 42% drop from the average sales volume of 17,683 units per year over the three-year period from 2011 to 2013, adds Tan.

Redas estimates that 1,100 to 1,200 unsold units across 17 developments will be hit by Qualifying Certificate (QC) extension charges by year-end. The estimated charges are said to amount to close to S$138 million. About 5,300 units remain unsold in 47 developments. This excludes ECs, where additional buyer’s stamp duty (ABSD) with interest will kick in from end-2016 to 2018. “To move sales, developers have cut prices by 5% to 25% for some of their projects,” says Tan. 

However, OCBC’s Ling feels that the downside risk in terms of prices is modest. “We have seen activity pick up in the first six months of the year, especially in the prime residential segment owing to the ongoing creative promotions and payment schemes that some developers have rolled out.”

Soft landing?

Ling sees the property market heading for a soft landing as interest rates are still relatively low and are expected to stay low for some time. OCBC has adjusted its year-end forecast for the three-month Sibor (Singapore interbank offered rate) to 1.05% and the SOR (swap offer rate) to 0.9%. Ling expects the “lower-for-longer” trend to continue as global uncertainties persist.

According to Chua Yang Liang, JLL head of research for Southeast Asia, “there is a lot of hidden value in prime residences in Singapore”. JLL’s basket of prime non-landed homes in Districts 9, 10 and 11 shows that prices have fallen some 20% from 2Q2011. Prime residential prices in Singapore today are 165% lower than those in Hong Kong and 92% lower than those in London.

The URA 2Q2016 flash estimates show that private residential prices have fallen 9.4% since the peak in 3Q2013. However, the q-o-q price dip of 0.4% is the smallest decline registered over 11 straight quarters of drop. “We think the residential market is close to the trough,” says Chua. “But we can expect minor adjustments in values over the next nine to 12 months, with slight recovery by mid-2017 and a more pronounced recovery after that, depending on the economic conditions then.”

With residential prices in the Core Central Region and the city fringe area (Rest of Central Region) stabilising, there is less motivation for the government to make any policy changes, adds Chua.

Michael Lim is City & Country deputy editor at The Edge Singapore.

This article first appeared in City & Country, a pullout of The Edge Malaysia Weekly, on Aug 1, 2016. Subscribe here for your personal copy.