Property market in 2013-2014: A watershed year or a transitional setback?

On 2nd January, HDB announced that the HDB Resale Price Index continued to drop in 4th quarter 2013. The 1.3 per cent decline was the worst since eight years ago in 2005.

Coincidentally, URA released disappointing estimated figures of private home sales in 4th quarter 2013. Private residential Property Price Index fell 0.8 percent — the first major decline since the aftermath of the financial crisis in 2009.

Even the usually resilient landed home market had its price index dropped 1.2 percent from the previous quarter. Overall, luxury homes were the worst performer with prices fell by 2.1 percent last year. Residential units sold in the prime districts were down 20 percent compared with 2012.

In the entire year of 2013, private home prices only grew by a humble 1.2 percent. What a frustrating fact for investors who just bought in 2013!

If they have put their money in a Singapore dollar 12-month fixed deposit account at the start of 2013, they could have enjoyed a comparable 1.1 percent interest rate from the bank — minus the hassle to calculate their total debt, the expenditure to pay all transaction costs, and the risk to face any volatility in the market.


When market sentiment turns bearish

With the market losing steam, market players who were once optimists suddenly turn pessimistic.

Industry analysts who shared their optimistic view on the property market not long ago, have changed gears to paint a bleak market outlook that echoes with the URA figures. Their forecasts on the decline of private home prices in 2014 vary from a slight drop of a one digit figure to a big slump of 40 percent.

Local property developers may be the only party who remains consistently optimistic. They are reluctant to admit any market weakness, claiming that prices are unlikely to be reduced in the coming new launches, though many have quietly done so in recent projects.

Meanwhile, property agents are reminding buyers that “this is the right time to buy” while asking sellers to lower their price expectations, hoping to close as many deals as possible before the rainy days.


The all-too-obvious culprits

It is not a difficult task for industry analysts to explain what have contributed to the softening of the market.

It is all too convenient to blame the imposition of ABSD (Additional Buyer’s Stamp Duty) and TDSR (Total Debt Servicing Ratio) for the poor private home sales. The declining COV (Cash-Over-Valuation) of HDB flats is also a big deterrent for HDB upgraders.

For HDB flats, anyone can see why prices drop simply by reviewing the cooling measures rolled out last year, particularly the cap of 30 percent for Mortgage Servicing Ratio and 25 years for HDB mortgage loans. And thanks to the government who keeps reminding the public every now and then that there will be increasing supply of Build-to-Order flats and building of new HDB flats.

But they are all wrong.

The depressing numbers shouldn’t come as a surprise to anyone. In fact, things have been incubating before 2013 and well before the introduction of the latest cooling measures.

There are at least three hints that show a possible reverse in market direction:

1. Properties for sale have an obviously longer ‘shelf life’ compared with their prime days;

2. A gradual reduction in the volume of sales transactions, especially in resale units; and

3. Rise in properties prices has slowed down, or prices remain almost the same for consecutive quarters.

And all of the above have been happening in the market since 2012.


How strong are the external forces?

Macroeconomic factors have been overused to explain what is happening. The withdrawal of QE, drain of hot money, rise of interest rates … these are topics that people pick up all the time. But to what extent are they responsible for the softening local property market?

If foreigners buying private residential properties in Singapore are well below 10 percent of the total number of units sold, how significant can tapering QE or retreating hot money affect property prices?

There are talks and predictions about the upward movement of interest rates. But how much exactly have interest rates increased for the whole year?

Look at the global economy, have we seen any real big changes in the US and European markets? What about Singapore? Did our economy, including GDP, export, retail, etc. change much during 2013?


What the future holds

Unlike the stock market, the ups and downs in properties do not happen overnight. And unless there is a big disaster or a financial crisis, it is unlikely to see a dramatic market crash.

It needs time to sell a property and to complete a sales transaction. It will be a few months or even a few quarters before a clear direction can be seen.

Is the once red-hot property market approaching a corner and going to turnaround soon?

The property market has definitely reached a crossroad. Whether 4th quarter 2013 is breaking point for a steep downward trend, or only a short-lived hiccup in a stable market, sooner or later time will tell.