Is Singapore property market hot or cold?

Two weeks ago, a front page news report in a business daily blasted the commonly held notion that Singapore’s private housing market is red hot, at least where developer sales are concerned.

The report – drawing on a study by Savills – said that compared to 2007, the market actually underperformed last year, even as home sales in terms of total units sold were higher. It said the market would most probably do the same this year.

Developers sold 13,910 units last year, 19.4 per cent higher than the 11,647 units in 2007. Judging from the pace of sales for the first half of this year, the final numbers for this year could add up to as many as 15,824 units, which will be an astounding 35.8 per cent higher.

But it said this simple analysis belied the fact that significantly more of the units sold in recent years were much smaller apartments located mainly in the suburban areas. In 2007, the majority of apartments sold were comparatively much bigger and most were located in the central areas.

In terms of total floor area sold and the average dollar per square foot achieved, the 13.43 million sq ft in developer sales last year was about 19.2 per cent lower than the 16.62 million sq ft sold in 2007.

In terms of the dollar average per square foot achieved, properties sold in 2007 averaged S$1,368, compared to S$1,257 last year and S$1,179 for the first half of this year.

In terms of total worth, the dollar value of the units sold last year stood at S$16.9 billion. Based on the first-half performance, the annualised figure for this year could go up to S$16.3 billion. Both figures are much lower than 2007’s S$22.7 billion.

Just from these figures, it does seem that the market is not as red-hot as we thought it was. This is important because if the market is not hot, then by implication, no more cooling measures are necessary.

More developer sales do not necessarily mean it is getting easier to sell, as there is considerably more supply now, resulting in falling market shares of individual developers. In fact, the reverse – harder to sell – may hold true.

Every new project launch takes the attention away from older ones so much so that it has become the norm for developers to refresh their launches with events – such as art appreciation talks or cooking lessons by renowned chefs – to tempt potential buyers to visit their show flats.

My suspicion is that most people are not going to be easily swayed, simply because they cannot afford private homes at current price levels, even if market conditions may be actually cooler than in 2007. For them, the market is simply less hot, but hot nevertheless.

Usually, price is the yardstick by which most judge whether the market is hot or not. If so, the market has cooled somewhat compared to 2007. For the past year and a half, prices can be considered relatively stable.

Can we ignore sales volume? In most cases, yes, but not when it is threatening to breach record levels.

Indeed, on Wednesday, the Urban Redevelopment Authority said that new private home sales rebounded 42 per cent from June to 1,943 units in July, boosted by demand for condominiums in the suburbs.

So far, the analysis has been confined to the primary market. The secondary or resale market for completed properties used to be twice as big just a few years back but has since shrunk considerably as many switch to new launches.

Another yardstick to determine whether a market is hot or not is the actual money flow into the housing sector. Although many are not aware that the worth of properties bought in 2007 is probably the highest ever, just as many do not realise that possibly less money could have been used to buy high-valued properties in 2007 than last year or this year.

Most of the deals in 2007 were probably closed under the deferred payment scheme: Just a 20-per-cent deposit allowed a buyer to buy a property worth five times more.

Today, after five rounds of cooling measures, up to a 40-per-cent deposit for local investors with more than one outstanding mortgage is needed to buy a property of the same value. Lest we forget, there is also the additional buyer’s stamp duty.

In fact, the money flows from properties bought in 2007 could have started to flow into the market only three to four years later, namely in 2010, last year and possibly this year.

So, whether the private housing market is hot, less hot or cool really depends on the yardstick you choose.

By Colin Tan – Head of Research & Consultancy at Chesterton Suntec International

Source : Today – 17 Aug 2012

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