What a roller-coaster week for Singapore’s real estate market.
It is a surprisingly well-coordinated good show put up by the Singapore government, complemented by the parts played by different stakeholders in the industry, with an unexpected ending of the cooling measures announcement.
The show leading to the announcement
Day 1: URA Q2 Estimate and PropNex IPO
The show kicked off on Monday when URA showed an increase of 3.4 percent in its flash estimate’s of 2nd Quarter 2018 private residential property price index.
The media reported the good news and the analysts cheered for another good year for the property market.
In the meantime, PropNex raised S$40 million in IPO which was 24.6 times oversubscribed by the public, despite controversies over transfer fee and revenue discrepancy.
Day 2: Government Land Sales
The next day saw URA awarding the 99-year Hillview Rise site to Hong Leong Group which paid the top bid of S$460 million and promised to deploy a few innovative technologies to boost productivity. This echoed with last week’s GLS announcement that four new residential sites and seven more on the reserve list will be launched.
Day 3: MAS Warning
On Wednesday, Monetary Authority of Singapore (MAS) chief Ravi Menon made use of the occasion at the MAS annual report media briefing to deliver his speech on “there is euphoria in the Singapore property market”, specifically warning developers, individual buyers and banks “to be sober, to be balanced and exercise good judgement”.
Day 4: New Cooling Measures
DBS CEO Piyush Gupta told the audience at a luncheon that “MAS is getting nervous, And also, from my understanding is the URA” and “it’s something to keep an eye out on”.
The time was finally ripe to push the new cooling measures to the market in the evening, with raising of 5 to 10 percent for Additional Buyer’s Stamp Duty (ABSD) and lowering of 5 percent for Loan-to-Value (LTV).
Desperate developers rushed to open yet-to-be-ready showflats. Some offered 5 percent discount until midnight. Desperate buyers under panic attack of FOMO flocked to Riverfront Residences and Park Colonial showflats for last minute shopping.
Day 5: The Aftermath
Shares of developers, property agencies and local banks tumbled. Analysts who were euphoric earlier this week changed their tone 360 degree to moan for worst possible scenarios under the new cooling measures.
Like I said in my earlier blog post “Singapore property game: The winner takes it all”, “a game is fun when everyone can take turns to play”.
In this case, I am not sure whether “all the players have equal chances of winning” or “whether it is a fair battle for all”. But at least, it is a fun game to play for the obvious winner.
Adding a Singapore stop to the Cooling Measures World Tour
From last year, there are property cooling measures countries around the world have with the slap of foreign buyer taxes and lending restrictions, Including Canada, Australia, New Zealand and China. Last week Hong Kong just imposed new vacancy tax on developers’ unsold units.
But unlike the red-hot property market in these countries, Singapore’s private property prices have yet to fully recover to reach historical high, while foreign buyers (including foreigners residing in Singapore waiting for their PR) only account for 6 percent of total private sales transactions last year.
Is it necessary to join the world’s party of cooling measures, when Singapore shares have just dropped over 10 percent, and stage a 4-day show to give the market another big shock – if not for the preparation of the coming election?
Though we all understand that, in a well-governed country like Singapore, the only two real complaints by the citizens are MRT breakdowns and private home prices not coming down.
We need players to stage a show
Our government decided that the show must go on. And it won’t be such a good show if not for the voluntary participations of different players.
Did the URA figures indicate that the market is looking up?
Well, it depends on how you interpret the data. A 3.4 percent increase this quarter could imply that growth has slowed down from the 3.9 percent climb last quarter.
Where are the increase in prices and jump in volumes coming from?
Prices of new launch projects are set by developers at a premium above existing market prices. The price per square foot is easily 25 to 40 percent above market valuation of units in nearby projects.
There is no major launch in Q1 except the Tapestry. Just in April and May, we had launch of Rivercove EC, The Verandah, Park Place, Twin Vew and the relaunch of a few projects in subsequent phases. These launches help to drive up volumes and stimulate sales in the market.
Developers are the ones that sell new projects at “future prices”. This is at most a self-fulfilling prophecy. Why would anyone be surprised to see prices increase 3.4 percent in the last quarter?
But like every time without fail, the media couldn’t help interpreting it with euphoric headlines such as “highest spike in private property prices since 2014”; the industry stakeholders couldn’t help wearing the hats of fortune tellers to predict the property market to grow 8 to 20 percent this year.
We understand that the media is looking forward to more new launches, more property advertisements and higher advertising revenue. But they are playing their usual role without realizing that this time they are falling into the trap to pave the way for tougher buying restrictions from the government.
The research head of a property agency once told me that he has stopped picking up calls from the reporters long time ago. Why bother? They are only looking for certain quotes from you to reinforce what they say in the articles.
By the way, did anyone read the last sentence in the URA 2nd Quarter 2018 flash estimate press release? It said “the public is advised to interpret the flash estimates with caution”.
More walk-ons joining the show
But we need some extras in a show – those walk-ons in the street scenes of a movie or the background of a performance with no speaking line. But this time, instead of being paid, the extras pay to appear in the show.
Undecided buyers who lack individual judgement are always looking for a sign to tell them what to do. With the government’s sudden addition of ABSD and tightening of LTV, they immediately saw this as “the sign” they have long been waiting for.
To beat the July 5 23:59 deadline, developers that just acquired sites at record prices were desperately getting rid of as many hot potatoes as they could. Some developers were bringing forward the launches a couple of weeks in advance.
So we have a few not-so-ready to launch new projects selling to a group of anything-also-buy homebuyers. Property is probably the most expensive thing people buy in their life, with a few hundred thousands or over a million dollar price tag, to be payable over the next 25 to 30 years.
Do these buyers really know what they are buying? Do they know what they are doing?
On 28 June 2013, MAS announced the 8th round of cooling measures with implementation of the detrimental Total Debt Servicing Ratio (TDSR).
Anyone remember how the buyers rushed to sign the Sales & Purchase Agreement and exercise the option in order to beat the midnight deadline? What happened to these buyers now? They found that they have bought at the peak of the market.
There is no point taking the offer of 5 percent discount from the developers. Who knows how big the discount they are giving to future buyers to clear the rest of the units?
If tomorrow the developer offers 6 percent discount to buyers, they might as well forfeit their 5 percent booking fee. Why? There is no point holding onto the unit when they can buy it cheaper now.
If tomorrow the developer offers 21 percent discount to buyers, or prices drop 21 percent, their units immediately become a negative asset with outstanding loan (20 percent) higher than the market value. That is when the bank asks them to top up the difference in cash.
I don’t make this up. The same situations happened before in 1998 and in 2008.
Never buy on the way down. You never know what’s going to happen next. You don’t want to buy today and see prices drop tomorrow. And no one can tell when the drop is going to stop.
– Property Soul, “Property investment in uncertain times“
Why listen to property agents? They often prove themselves wrong.
Remember those who bought under the Deferred Payment Scheme, stay-then-pay programme or two-year lease option? If they still want to keep the units, now they have to pay 4 percent buyer stamp duty and 5 percent more ABSD, but with 5 percent lower LTV.
What I didn’t get is: Didn’t the government just announced the launching of four new residential sites and putting up another seven sites on the reserve list? With two other “white sites”, we can potentially build a total of 10,745 new private units. And that is on top of 44,261 units that are already in the supply pipelines.
Where is the rush to buy?
It is a game afterall. Whether you choose to play or not, it is up to you.
– Property Soul, “Singapore property game: The winner takes it all”
I know I still haven’t touched on the developers and the banks which are two key players of the show. But it’s time for intermission. Let me share with you how they will contribute to the scenes of the property market in my next podcast from my youtube channel. Come back after the intermission to watch part two of the show.
I am doing the How to Buy Good Quality Properties 1-Day Workshop one last time on July 21. Don’t miss it if you want to learn from my honest sharing of how to pick the best project, direction, facing, layout, fengshui, etc. in a residential property. Sign up now and see you there!
Hi,
I have reading your blog about 1 month ago which I find it very interesting and insightful. It does balance out the news which we were hearing from property agents, news and developers Everyday.
I started hunting for a new place about 6 months ago while putting my house for sale at the same time to move to a new location.
2 months ago, I sold my house but wasn’t able to purchase a alternative location because, not for the lack of choices, but the asking prices were way above what it was transacted just last year. For example, a unit that I was interested in was asking for a price of $1.98M (agents says valuation is $1.9M) while a simple check from the URA caveat shows that a similar unit in the same area with the same sqft transacted just 8 months ago at $1.4M. That’s over 40% increase in less than a year. I don’t think any property appreciates 40% in a year no matter how “renovated” it is. It’s not one, but almost all the properties that I have search are asking for at least 15% above last year transacted price. Makes me think that the agents are colluding on maintaining the mirage of high prices…
So my wife and I decided to stop hunting for our next house after 6 months of house viewing and decided to rent instead. We rather rent and play the game and end up overcommitting a overpriced house for the next 30 years.
Your blog have been a principle influencer in us coming to this decision as we share your views. We like to thank you for making this positive impact.
Despite all the talks of a blooming economy, we can’t see it anywhere around us. Salaries are stagnant and interest rates are rising, something just doesn’t feel right.
For now, we will seat out fo the market until it bottoms out before buying our dream home at reasonable prices.
Keep up the good work and keep those blogs coming!
Hi Roy, thanks for sharing.
Most people only manage to sell high (their old home) buy high (their new home). It Is hard to predict when the market will bottom out but you can sense it when nobody is buying. At the end of the day, your patience will be rewarded.
Really? How? I predict market won’t drop and everyone can just sit for years not getting their condo. Meanwhile, those with means (and there are many of them) will buying. Don’t forget Singapore have a lot of new migrants and the younger population who will eventually buy.
The saying that “property prices won’t drop” and “this time the market is going to be different” sound familiar. But we get it more every time before the stock market crash and before property market correction. You may like to watch Ku Swee Yong’s video on how he analyzed the figures on 1) Which segments of our foreigner population are growing; and 2) what the annual release of 15,000 – 17,000 new BTO flats is doing to our future housing market -> https://youtu.be/5A9Dz7olEYY
I agree with you. The reason why sometimes confident sellers ask for much higher prices is due to euphoric and temporary news and market sentiments. This can range from stock price upticks, government measures to tame the market, or media overblowing of an issue.
Sometimes such moments last for weeks or a month. Sometimes the euphoria lasts longer…months or even a year. This time it may last 6 months or more.
Great that you are more enlightened than others.
The reverse is also true during a prolonged downturn. Even when there are clear signs that the market is picking up, the media tend to ignore the good news.
Hi PS,
Your articles & calls have always been prescient ……. Good reminder for impatient or FOMO people! 🙂
I guess another metric for property bottom besides no buyers will be half of agents leaving the industry LOL.
Oh …. should be 180 degrees, not 360 — full circle & back to original direction 🙂
Yes, hopefully only the good property agents stay. They are rare and hard to find these days.
And I like your “180 degree” analogy : )
Hello, thanks for sharing this piece. Quoting your paragraph
“Desperate buyers under panic attack of FOMO flocked to Riverfront Residences and Park Colonial show flats for last minute shopping.”
I heard this on Friday morning’s radio news report and couldn’t help laughing. This is hilarious and very typical of our Singaporeans. From queuing at over publicized food stalls to lottery kiosks to overpriced condo show flats, stupidity conceived in all forms and shapes. omg…
Kiasu and herd mentality are “uniquely Singapore”. Quoting this from my book:
“People feel more terrible missing the opportunity to make money, compared with the consequence of being stuck with a bad investment. When the market crashes, it is common to find others who end up with the same fate. And it is a relief to know that ‘we are all in the same boat’.”
Are you sure on this part? Shouldn’t it be based on OTP date instead?
“Remember those who bought under the Deferred Payment Scheme, stay-then-pay programme or two-year lease option? If they still want to keep the units, now they have to pay 4 percent buyer stamp duty and 5 percent more ABSD, but with 5 percent lower LTV.”
You can add a clause in your Option To Purchase when the buyer will exercise the option. Deferred Payment Scheme is making use of this to defer exercising the OTP from two weeks to two years. Because once buyers exercise the OTP, they have to pay BSD and ABSD.
Why no cooling measures to bring down the car COE value in 2013 when it almost touched 100k? Despite TDSR, existing ABSD, SSD n shit load of measures in force why this knee jerk push which was totally unexpected ? Is the governments approach is to ensure the property price dont rally but at the same time ensure price bidding war among developers still remains in the form of GLS land sale? What form of transparency is this? If propery prices begin to decline and millions n millions of household loose money will government refund the absd; ssd?
Welcome to the world of open election where the party that garners the majority votes wins. Don’t forget we have far more car-free citizens compared with car owners. And we have far more HDB dwellers compared with private home owners.
In Singapore, we have 3.16 million residents staying in HDB flats. That is 80 percent or 4 in 5 residents. There are also 6 planning areas with over 90 percent of residents staying in HDB flats. Why would average HDB owners want private property prices to go up when they themselves cannot afford to upgrade? As a government subsidizing citizens to stay in HDB flats, of course the money would come from GLS, stamp duties and property taxes.
It is the developers that are bidding at record prices and the homebuyers that are buying new launch projects at future prices. That is only willing buyer willing seller.
You mentioned WINNER in the singular,
Who is he or it ?
Will there not be a silver lining resultig from the additions to government coffers from collections of increased duties, levies etc ending in a more benevolent government holding back the planned GST increase and a sapte of other revenue generating programs that are about to be shuffled down the citizens’ throats?
I thought it is very obvious who the winner of the show is. IF in doubt, please refer to my blog post “Singapore property game: The winner takes it all” -> https://www.propertysoul.com/2018/04/06/singapore-property-game/
Well, we don’t have a say how the government makes use of the surplus. But it is always a blessing to be under a cash-rich government, compared with the ones who are under huge debts or bankrupted. At least we have a strong currency, not good for exports but our everyday life won’t be affected by inflation from imported goods. And we are all “rich” when we travel and invest in other countries.
You are right there. We are better off here compared to Malaysia. Or even HK, which is under turmoil now. It also means our property market WON”T Drop. So your predictions and data crunching is all for nothing, because however illogical you may see it, prices will go up, albeit at a slow rate. Nobody will want to sell down in the market if they can help it. If nobody sells down, how is the market going to drop 10, 20 30% as you hope it would? Haha.
There are only two things in this world that will not drop: your age and the number of FOMO buyers rushing to the market before it crashes. I heard too many times that prices won’t drop, mostly from the lousy property agents (the better ones will say you can buy if you have holding power for the long term). But what happened to people who bought in the mid-1990s, 2000 and 2013? I personally know people who bought overpriced new units at the peak of the market in 1995 waited almost 20 years to breakeven. How many ten years do you have?
New cooling measures but we still got to get our house, right? I’m looking at treasure at tampines and when its just launched.. 272 units of 490 released at launch was sold. https://www.straitstimes.com/business/property/mega-condo-treasure-at-tampines-sells-272-units-of-490-released-at-launch The property market right now is insane. But what can we do? Just take a look.. https://myluxhome.sg/treasure-at-tampines/ As property are building our prices and cost of living becoming higher and higher..
Don’t be naive. The project has 2,203 units. 272 units means only 12 percent were sold. As in other new launches, when developer sold 15 units, they would tell the media that only 20 units were released in phase one. Everybody can see this is a face-saving way to cover poor results. If we gave them 500 cheques, do you think the developer will say, sorry only 490 units are launched in the first phase?
I think the question is not “what can we do”, but “what can developers do” to clear the units from sites they bought at record prices. But as soon as you and I are not desperate buyers, I don’t see this has become our problem. With the property market cooling down and huge supply in the pipeline, buyers have plenty of choices. I agree with Ku Swee Yong that for cost of living, we will see some expenses such as healthcare and education cost going higher and higher. But this doesn’t apply to housing because of supply demand disequilibrium.
Again , your tactic of waiting for ABSD deadline to loom to grab “discounted” units is flawed. Don’t forget, all these are BALANCE units. It means these are inferior units that no one wants, so naturally they have to sell at a discount. These are units that are wrongsized for the particular location, or very bad facing (west, rubbish bin, highway), or very large quantum units… don’t expect a BARGAIN and a GREAT unit. I’ve been looking around, I know this. You see and twist the data to tell your part of the story, same as everyone else, lah. Btw, I expect that this post won’t see the light of day, haha
It is a myth that the leftover units are not the good ones. But in this industry, it is “save the best for last”. Developers believe that if the undesirable blocks can also be sold, they will have no problem selling the better blocks. But most homebuyers are amateurs who can’t tell the good from the bad blocks/units anyway.
Who said I would wait for the peak of ABSD deadlines to buy discount units? The best deals are not from the developers, but from the early birds who bought first hand from the developers. Did you sign up as a Property Club Singapore member to read the bonus chapter of my book on how I found those deals in the market?
http://www.propertyclubsg.com/membership/