Developer sentiment weak, but turnaround expected

As expected, the recently-released Real Estate Sentiment Index weakened in the third quarter.

This is not surprising at all, considering that developers sold only 2,430 private homes in the quarter — their weakest showing since the fourth quarter of 2009 and down from 4,538 units sold in the second quarter, official figures show.

And if you had visited any of the project launches between June and mid-September, you would probably have noticed the poor attendance and mostly glum faces of property agents manning those showflats.

Surely, sentiment must be at rock bottom or an all-time low. Sentiment cannot be good if you are selling few or no units at all.

Compiled by the Real Estate Developers’ Association of Singapore (REDAS) and the National University of Singapore, the Real Estate Sentiment Index (Composite) — which indicates current overall market sentiment — registered 3.9 in the third quarter. This was down from 4.5 in the second quarter but still about one point above the record low in the fourth quarter of 2011, when the Additional Buyer’s Stamp Duty was announced in December. Then, it was pure sentiment not backed by any sales numbers. This time though, the weak sentiment was backed by weak sales.

Not unexpectedly, developers are pointing the finger of blame at the introduction of the Total Debt Servicing Ratio (TDSR) framework in June for the weakened sentiment and, by inference, poor sales. Property commentators must take the blame for this. They have consistently blamed the TDSR, as though removing it would immediately relieve developers of all their woes. Will it? I seriously doubt so.

If all developers believed that the TDSR was solely responsible, they would have started slashing prices by now, because the loan curb is not going to be removed any time soon. It is “permanent”, for now at least. Most definitely, price slashing has not happened.

Besides, it is also a most convenient excuse for marketing staff to explain their poor performance to their bosses.

But I believe things should start to look up. Analysts must learn to take a broader view. Nowadays, what happens outside Singapore frequently has an impact on our home markets.

It is not a coincidence that the poor housing sales showing happened at about the same time as the announcement of the United States Federal Reserve’s intention to wind down its monetary stimulus. It was quickly followed a few weeks later by the Monetary Authority of Singapore’s announcement of the TDSR.

The “tapering” question has now been resolved or at least delayed until possibly early next year. That is, if it is actually possible, given the still weak state of the US economy.

The positive signs are already here. The 506-unit SkyPark Residences Executive Condominium (EC) project in Sembawang ended its application period with 1,604 applications — more than triple the number of units available.

And even as the news media were reporting about the cash premiums for Housing and Development Board (HDB) resale flats hitting a new four-year low last month, the same Singapore Real Estate Exchange numbers also pointed to a slight increase in overall HDB resale prices after four consecutive declines in the preceding months — a fact not widely highlighted.

In the private housing market, developers’ sales for September surged 65 per cent to 1,246 units from 756 units in August.

More recently, how can we fail to notice the strong buying response to The Inflora condo in Upper Changi — TDSR or no TDSR.

Finally, the latest Urban Redevelopment Authority property price index showed a 0.4 per cent rise in the third quarter despite the worst sales showing since 2009.

Property analysts should recognise — if they do not already realise this — that our private housing market is heavily investor-buyer dominated.

In theory, the TDSR should affect owner-occupiers the most, but most such buyers are already flocking to the EC market. How else can you explain the robust sales for ECs in the face of an unprecedented huge supply?

It is also the reason for the slowing private home sales. Investors buy on sentiment, while occupiers buy on need. And investors have been waiting on the sidelines for clarity on the US situation.

Now that the tapering issue is delayed, investors have to make a decision whether to continue to wait or jump in.

The stock markets have long recovered their earlier losses. And if you believe they lead the real estate market, then it will not be long before sales, if not prices of private property, start to turn around.

By Colin Tan – Director of Research and Consultancy at Suntec Real Estate Consultants

Source : Today – 1 Nov 2013