Singapore property: Is the glass half empty or half full?

About two weeks ago, property analysts at Credit Suisse released their findings of a survey it conducted to obtain a clearer picture of buyer behaviour given the strong sales at private residential project launches this year.

It said its sample of 300 households had a profile that matched the Singapore population “quite accurately”, with 80 per cent living in public housing and with close to 9 in 10 owning a home.

It found that cash was ranked by 34 per cent of households as their top investment vehicle, followed by residential property at 27 per cent, and stocks at 23 per cent.

Only 21 per cent of the 300 households polled said they would consider buying a property within the next 12 months while 40 per cent did not intend to buy any time soon.

Respondents had high aspirations to upgrade, with 57 per cent preferring private homes to public housing.

New rather than resale is favoured as well, with 70 per cent preferring to buy from developers.

As I read the report, I am reminded of the common expression: Is the glass half empty or half full? Are the findings of the survey cause for pessimism (half empty) or optimism (half full)?

The Credit Suisse analysts chose to read the findings negatively, saying the sentiment expressed suggested transaction volumes would moderate after the strong showing in the early part of the year.

However, the same findings can be seen in a more positive light.

The last I checked from official sources, the number of resident households in Singapore totalled 1,146,000 last year.

Assuming the survey is representative of the population, 21 per cent, or 240,660 households, would consider buying a property within the next 12 months. Of this total, 57 per cent, or 137,176 households, prefer to buy private. With 70 per cent preferring to buy from developers, this figure comes to 96,023.

How many years’ worth of new home sales does this represent? Assuming that about 15,000 new homes are sold per annum, this represents more than six years’ worth of sales. Does this suggest that new home sales would slow down any time soon?

The survey also showed that affordability was not a real constraint. Affordability and liquidity remain strong. Household balance sheets remain strong – 47 per cent have no mortgage while another 46 per cent have only one mortgage.

Some 92 per cent have either no mortgage or have less than 30 per cent of household income going to mortgage payments. And 30 per cent have over S$100,000 in cash, which could easily form the downpayment towards buying a property.

Still on mortgages, the Monetary Authority of Singapore said on Wednesday it would be closely monitoring a new 50-year mortgage product – shortly after United Overseas Bank introduced a home loan that spans half a century, probably the longest tenor available here.

With respect to liquidity, it was reported on Tuesday in the United States that the Federal Reserve was leaning closer to further rounds of stimulus unless the nation’s economy showed signs of improvement soon, including in job growth.

Fed Chairman Ben Bernanke painted a bleak picture of the world’s largest economy, saying growth continued to disappoint even as it kept the US from slipping back into recession. It is looking likely that the US economy would enter into its own “lost decade” like the one Japan had experienced.

A third round of asset purchases by the Fed called “quantitative easing” – often called QE3 – would further drive down long-term interest rates.

What does this mean for interest rates in Singapore? Yes, it appears that a sharp interest rate hike is not likely to happen any time soon and the robust property buying looks set to continue.

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

Source : Today – 27 Jul 2012

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