S’pore’s worst recession in 55 years — but why does the private property market not reflect that?

Singapore’s economy contracted 13.2 per cent year-on-year in the second quarter, leading the Government to downgrade its forecast for the country’s gross domestic product to shrink between 5 and 7 per cent, instead of between 4 and 7 per cent.

This would be the nation’s worst recession since independence.

It’s also not a pretty picture on the job front. A total of 11,350 people were laid off in the first half of 2020 and the number is expected to increase in the second half of the year.

Yet, in spite of the grim economic outlook, the private residential market seems to have bucked the downward trend.

The Urban Redevelopment Authority (URA) private residential price index showed a 0.3 per cent quarter-on-quarter rise in the second quarter of 2020, led mostly by the price increases in non-landed properties in the core central region.

URA flash estimates released on Thursday (Oct 1) show that the prices in the third quarter further rose 0.8 per cent quarter-on-quarter, with the spike led mostly by transactions in the rest of central region.

After experiencing two months of “cold winter” during the circuit breaker measures, the private non-landed residential market has shown signs of recovery.

According to URA’s caveat records, the number of new homes sales dipped sharply to 247 and 447 during the circuit breaker periods in April and May 2020, respectively.

Shortly after the lifting of the circuit breaker in June 2020, the new sale activities surged and hit a peak of 1,225 (excluding sub-sale) in August 2020.

This is 28.3 per cent more than the 955 new sales in August 2019.

If you add in resale figures, the combined sales volume in both the secondary and primary markets has increased sturdily from 1,314 units in June, to 1,995 units in July and 2,259 units in August.

The August figure is 35.5 per cent higher than the 1,667 units in August 2019.

Is the recent upsurge in Singapore’s private residential market activity decoupled from economic fundamentals? This unique phenomenon has puzzled some analysts.


The top 10 best-selling projects in August 2020 according to URA are listed in Table 1.

The top performer is Forett @ Bukit Timah with a total 213 units sold, followed by Treasure at Tampines (109) and Parc Clematis (90).

What could have driven the strong sales in August?

First, some analysts have suggested that the low interest rate environment could be one possible factor behind the revival of sales in the private housing market.

The latest Monetary Authority of Singapore (MAS) statistics show the housing loan rates have come down by 43 basis points to 2.84 per cent in June and July.

The housing loan rate by finance companies has fallen below 4 per cent since April 2012, and the rates fluctuate within a narrow band of between 2.84 per cent and 3.41 per cent for 15-year loans.

The change in interest rate is marginal, and does not seem to be a significant trigger for the surge in the August sales.

Moreover, macro-prudential measures and the total debt servicing ratio are still in place to limit borrowings for housing purchases.

The second widely held hypothesis links the strong sales to pent-up demand by buyers, who may have deferred their home purchase due to the circuit breaker measures in April and May. Yet any pick up in sales momentum should logically be underpinned by positive economic factors.

It is useful to bear in mind that for the best-selling project in August, the 213 buyers for the freehold Forett @ Bukit Timah, paid an average unit price of S$1,931.44 per square foot (psf). Clearly, these buyers would need to have deep pockets.

The same could perhaps be said of buyers of the latest 99-year leasehold Penrose condominium in Sims Drive.

Developer Hong Leong sold 60 per cent of the 566 units in the project during the weekend launch on Sept 26-27.

The units were snapped up by mostly Singaporean buyers at an average price ranging from S$1,500 psf to S$1,700 psf.

Clearly, the decisions of these buyers are partly driven by long-term inflationary expectations.

But it would be foolhardy to think that property prices will always rise.

The third argument, which we believe, is that foreign investors and/or Singaporean permanent residents are possible sources of the demand in the private residential property markets.

Singapore’s whole-of-government approach in fighting and bringing the pandemic under control has given strong confidence to foreign investors, including those looking for investment opportunities in safe havens.

Based on the URA Realis database, the number of buyers identified as foreign buyers is 193, which is only approximately 15 per cent of the sales in August.

The number is not exceptionally high enough to cause alarm on the influx of foreign money into the local market

However, following the recent report by International Consortium of Investigative Journalists on some banks helping to move foreign illicit funds, we expect the authority to impose tighter scrutiny on foreign capital movements.

There could be a fourth reason for the higher than expected sales volume — that they are distorted and do not reflect the reality.

Some market sources point to the practice of some developers re-issuing the option to purchase (OTP) as one possible factor in distorting the sales figure.

Home buyers typically pay a deposit and are issued an OTP by the developer on the premise that they exercise the option within three weeks, failing which they lose part of the deposits.

However, some developers have reportedly not been enforcing the forfeiture and may have reissued the OTPs by mutual agreement.

This means the buyers can finalise the purchases only months later, usually because they need to sort out their finances or want to be sure that the market is trending up as they had hoped.

Yet these numbers are not believed to be large to cause the increase in prices.


The negative outlook on the economy and jobs does not seem to support the return of fundamentals to pre-Covid levels.

It is therefore valid to ask if there is disconnect between the recent rebound in private residential sales and the real economy.

Concerns over the disconnect has led the URA to announce tighter rules to prevent developers from reissuing OTP to the same buyer of the same unit within 12 months after the expiry of the earlier OTP. Additionally, homebuyers will risk forfeiting 25 per cent of their booking fees if they fail to exercise the OTP within three weeks.

While buyers keep an eye on the long-term resilience in the private residential market, they should also not take their sights off the short-term volatility in the market.

The market could undergo a more permanent restructuring, as the line between work, live and play becomes blurred in a post-Covid-19 world.

A home may longer just be a place to live in, but also one to work and play in.

No one can quite tell how they will affect the real estate ecosystem.

It pays to be prudent and cautious in such uncertain times.


Dr Lee Nai Jia is deputy director and Professor Sing Tien Foo is director of the Institute of Real Estate and Urban Studies at the National University of Singapore. These are their own views.

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