More investors expected to cash out amid record-high home prices

Many new private condominium projects are due to be completed this year, and some analysts expect more investors who have bought these units to start selling them, as private home prices are at an all-time high.

Property consultancy Colliers International adds that it is probably a good idea to do so sooner rather than later.

Home prices have been climbing in recent years.

For example, those who have bought units at Ascentia Sky when it was launched some four years ago are sitting on healthy gains.

Located along Alexandra Road, the units were going at an average of S$1,300 per square foot then.

Now, transacted prices in the area have gone up to about S$1,700 psf, partly lifted by benchmark prices set by Echelon, a new project nearby.

Nicholas Mak, executive director of SLP International Property Consultants, said:
“Based on latest statistics, there are about 60 newly completed projects in the first quarter of this year.

“Some of these projects that are completed this year were launched for sale three years ago before some of the more severe cooling measures were implemented.

“Hence, the owners who bought some of these strata-titled units three years ago can still sell them and they are not subjected to sellers’ stamp duty.”

Analysts say newly completed projects are sought after by buyers who want to move into a brand new home or rent the unit out quickly.

But they warn it could now take longer to sell as potential buyers are likely to be more cautious.

That’s because some may be affected by cooling measures, including the Additional Buyer Stamp Duty (ABSD), while others could opt to buy directly from developers which offer attractive discounts.

In addition, those who buy a newly completed project will not be able to enjoy progressive payment scheme offered at new launches.

So they will be required to service mortgage on the full loan amount after the purchase.

But analysts say investors should beware of potential headwinds.

Colliers International’s director (research & advisory), Chia Siew Chuin, said: “At this point in time, URA’s price index shows that prices are at an all-time high, so it is an opportunity for investors to cash out at today’s level rather than to wait for future price appreciation.

“In addition, if we were to look at the possibility of the US Federal Reserve upping the interest rates as a result of the cut-back on the monetary stimulus, then that would mean that there could be some bearing on liquidity and in turn possibly a reduced affordability going forward.”

Recently, a Barclays report warned that home prices in Singapore could fall by up to 23 percent if mortgage rates increase by 2 percent (200 basis points) within a short period, assuming all things remain constant.

And it could be worse if this coincides with a bumper supply of public and private housing.

Barclays said total housing supply could reach 30,000-40,000 units per year over next three years, and that’s significantly above the historical average annual supply of 12,300, according to its estimates based on published data by the Housing & Development Board (HDB) and Urban Redevelopment Authority (URA).

While some of the supply could be absorbed by pent-up demand following prior years of undersupply, Barclays said vacancies could rise, rents could fall and prices could fall faster should there be a squeeze from higher mortgage rates.

It added that drastic price collapses could be mitigated if there were a more gradual increase in interest rates, accompanied by income growth, some expansion of the mortgage-servicing ratio and given more prudent owners and investors who have been taking a longer-term view after seven rounds of measures since September 2009.

SLP International Property Consultants says that since the Asian financial crisis, a property up-cycle lasts no more than five years.

Singapore’s property market is now in the fourth year of growth, largely supported by high liquidity and low interest rates, and SLP says a correction could happen in the next one to two years, especially if macroeconomic conditions sour.

Source : Channel NewsAsia – 2 July 2013