To divert public attention from the recent hot topic of supply glut in the property market, The Straits Times made use of November’s new sales to give developers a face-saving headline: “New private home sales rebound in November amid supply glut: URA data”. (The Straits Times, Dec 16)
The article said “Excluding ECs, developers sold 1,147 units last month, 23.2 percent more than 931 units in October and just 4.5 percent fewer than the 1,201 units in November 2018”.
The result sounds encouraging. There is ROI advertising new launch in the papers afterall.
But wait. The article said “Three previously launched projects did well in November include Parc Esta (102 units), JadeScape (60 units) and Parc Botannia (59 units)” which were among the “top 5 performing projects” last month.
How new are these “new” projects? JadeScape and Parc Esta were launched last September and last November respectively. Parc Botannia was first launched two years back. So there are still many units left on the shelves one to two years after launch?
From now on, “new” projects giving discounts to clear unsold units are qualified to be best-sellers of the month – in order to thank them for their contribution to the “rebound” of the new sales market.
Feel the chill at the sales galleries?
Last month there are only four new projects launched for the first time, including Dairy Farm Residences, One Holland Village Residences, Sengkang Grand Residences and The Iveria.
Together the four projects sold 367 units which is 32 percent out of the total of 1,147 new sales units sold last month. Below are their November sales figures after deducting a few returned units.
The bestselling new project launched is Sengkang Grand Residences which is 34 percent sold, versus 8 percent sold for the disappointing sales at Dairy Farm Residences.
Forget about the face-saving explanation that developers only launched limited number of units in their projects. Would any developer want to hold back so many units to wait for the festive seasons, the market uncertainties next year, or the ABSD deadlines?
Despite drawing 1,000 to the preview, United Engineers only managed to sell 35 out of 460 units at Dairy Farm Residences. When it was launched on the weekend of November 23 and 24, in anticipation of strong competition, a nearby new project Midwood launched just a month ago decided to lower prices over the same weekend.
How we miss those good old days when new projects like J Gateway, Alexandra Central, Hundred Palms Residences, The Hillford, etc. were 100 percent fully sold on the first day. Who need the bells and whistles of hosting thousands at previews, announcing soft launch, preview, official launch and balloting but still end up selling only tens of units on the first weekend?
There are no less than 60 new projects launched this year. And more projects are queuing to be launched early in 2020, including The Avenir, The M, 35 Gilstead, Van Holland, Leedon Green, The Landmark and Hyll on Holland.
Meanwhile, the proportion of buyers with HDB addresses for new sales fell nearly 15 percentage points to 29.5 percent, signaling a decline in the number of HDB upgraders to new private homes.
Where can we find enough homebuyers to take up close to 20,000 unsold units and another 32,000 new units in the supply pipeline?
Powerful Elsa versus powerless Anna
Walt Disney’s Frozen II just grossed $1 billion in box office a week before the Christmas Day. While kids are thrilled by Frozen, we adults are chilled by the word frozen, especially when referring to frozen assets, frozen accounts or frozen markets.
For those of you who haven’t watched Frozen or Frozen II, let my favorite Frozen character Olaf tell you the story:
“It began with two sisters. One born with magical powers, and one born powerless …”
In Frozen, Elsa is born with magical powers, while Anna is a powerless ordinary girl. In properties, the government is superhuman Elsa with godlike power, while developers are ordinary human Anna with no power.
Earlier this month at a gala dinner, the Redas president admitted that developers are concerned over the challenging market situation of high supply and subdued demand. They want to be more proactive in facilitating dialogue with the government. Redas will form a committee to raise concerns with government agencies. (The Straits Times, Dec 3)
At the same dinner, Second Minister for National Development Desmond Lee reinforced that continued government intervention is needed to maintain the market’s stability to protect homebuyers and home owners.
The government has implemented nine rounds of property cooling measures from September 2009 to July 2018. Each round of new curb was made effective the next day. No advance dialogue with developers was necessary.
The next day after the Redas president voiced his concern over supply glut, URA announced three confirmed sites and eight reserve sites for 1H2020 under the Government Land Sales programme, with the potential to yield up to 6,490 private residential units.
Anna: Okay, I don’t understand. You’ve been hearing a voice, and you didn’t think to tell me?
Elsa: I didn’t want to worry you.
Anna: We made a promise not to shut each other out. Just tell me what’s going on.
Elsa: I woke the magical spirits of the Enchanted Forest.
Trying to thaw the frozen cooling measures
The following week the CEO of City Developments Limited (CDL) urged the government to lengthen the ABSD deadline from five to seven or even ten years, citing the reason of worsening supply glut in the private homes market. (The Straits Times, Dec 11)
Anna: I know how to free the forest. I know what we have to do to set things right. We have to break the dam.
Olaf: But Arendelle will be flooded.
Anna: That’s why everyone was forced out. To protect them from what has to be done. The dam must fall. It’s the only way to break the mist and free the forest.
CDL believed that, in order to save the developers, the ABSD timeline must be extended. However, the government is unlikely to answer to CDL’s request, for four obvious reasons:
1) If developers cannot clear all unsold units five years after acquiring the site, they are required to pay 25 percent ABSD. And CDL’s chief just reminded IRAS that they are actually paying a total of 31.25 percent with compound interest of 5 percent per annum for five years. Why would the government extend the timeline?
2) When foreign or listed developers are unable to dispose all the units 2 years after completion of their new projects, they have to pay Qualifying Certificate extension charges. Computed by the number of unsold units, it is 8 percent of the purchase price of the land for first year extension, 16 percent for the second year of extension, and 24 percent for the third and subsequent years. Why would the government bother about 20,000 unsold units and 32,000 new units in the pipeline?
3) Singapore’s property cooling measures are regarded as effective compared with other countries. The government aims to maintain a stable and sustainable private property market. Besides, the next election is just around the corner. Why the hassle of flipping an effective cooling measure to upset voters?
4) The government’s jobs are the sales of land sites, control of developer acts, and release of regulations to contain an overheated market. It is not their job to ensure the profitability of developers. The government’s main concern is whether homebuyers and local banks are over-leveraged, but not whether the interests of the developers are taken care of. Why act as the Santa Claus to fulfill a developer’s wish this Christmas?
Developers left to face the music
Developers are blaming the government for the harsh terms of the cooling measures. It looks like the ball is in the government’s court.
But weren’t these taxes already there when developers were aggressively bidding government land plots and acquiring en bloc sites in 2017 and 2018? Hadn’t they run their numbers in-house to check the profit margins before submitting their bids? Weren’t they aware of the new sites bought by other developers and the number of new units that are coming up in the next few years? Didn’t they know the size of the homebuyers and see that it would take years to clear the stock?
Anna: Wait, what? Crazy? You didn’t say I was crazy. You think I’m crazy?
Kristoff: No. I did. You were. Not crazy. Clearly. Just naïve.
To be fair, the remissible ABSD was set at 15 percent of the land’s purchase price before July 5 last year. An additional 10 percent was slapped by MAS on the developers after the new curbs. And this was done after the government sold all the GLS sites at record high prices to local and overseas developers who were busy competing with each other fiercely to build their land bank.
Elsa: What were you doing? You could have been killed! You can’t just follow me into fire.
Anna: You don’t want me to follow you into fire, then don’t run into fire!
Elsa: Don’t you know there’s part of me that wants to go into the unknown?
Last month, MAS in its financial stability review warned that a potential oversupply of unsold units could put pressure on the private residential property market. It could bring down the prices if the demand does not rise correspondingly.(The Straits Times, Nov 29)
The peak of new projects facing their 5-year ABSD deadline will come in 2022 and 2023. But some developers are already giving discounts. Four months before its ABSD deadline, eCO at Tanah Merah sold its townhouses at $829 psf – a generous 36 percent discount from $1,302 psf a year ago.
Besides offering attractive discounts, developers can clear unsold units in bulk. Early this month, thirteen semi-detached houses at Eleven@Holland were marketing at a guide price of $38 million or $2.9 million per house. It’s a good deal compared with $3.7 to $4.4 million for houses sold in the same project between 2011 and 2013. After completion in 2014, seven houses in the project were sold at $17.5 million or $2.5 million each in March 2017.
Mattias: That was magic. Did you see that?
Yelena: Of course. I saw it.
Kristoff: They’ve been trapped in here this whole time?
Anna: Yeah.
Now what?
It is ironic to read the responses of property agencies in the article “ABSD ‘extension’ may ease property glut but experts flag limp demand” (The Straits Times, Dec 12). Now they talked about problems of “flagging demand”, “affordability”, “supply-demand mismatch” and “developers are definitely under pressure”.
Remember right after the new curbs imposed last July, they were all saying that the number of 50,000 unsold units is “not a cause for alarm – as long as developers space out their launches before their five-year deadline”.
A spokeswoman from JLL said, “We believe a lot of our developers have deep pockets … and there is liquidity and pent-up demand in the market”.(Channel NewsAsia, July 21)
Seventeen months later, did they wake up one fine day and realize that there is oversupply in the new condo market? Did they come to terms with the fact that there are simply not enough homebuyers, HDB upgraders and foreigners to consume all the new units? Did they finally admit that new projects are not moving despite higher commissions offered by developers?
Do developers have magical power strong enough like Elsa? How can they weather the snowstorm? Will the new sales market be frozen in the near future? When will it be unfrozen? We shall see.
Olaf: And Anna freezes to death, forever. Then she unfreezes. And then Elsa woke up the magical spirits, and we were forced out of our kingdom, and now our only hope is to find the truth about the past, but we don’t have a clue how to do that.
The government’s jobs are the sales of land sites, control of developer acts, and release of regulations to contain an overheated market. It is not their job to ensure the profitability of developers – well said.
Trying to read the mind of the authorities which don’t bother to respond.
one of the best article by you esp the usage of Frozen analogy.
But i suspect it is good because i dont need to hear your “painful” English accent… please write more instead
Thanks. Wait. I am taking a short course to brush up on my Singlish accent. Stay tuned! And don’t miss me too much.
Thank you very much for all the enlightening thoughts and perceptive remarks delivered in your “accent” (which I would compliment and think is representative of your native country) over the years.
Thanks. I’m happy to be myself in my YouTube channel. People who don’t get it can read the CC subtitles anyway.
Hi. Would appreciate your breakdown of the supply glut. I believe the news say that there is an overhang of about 32,000 unsold units, so how did you get 20,000 unsold units and 32,000 in the pipeline? Are your statistics the latest? Thanks
These are all published data by URA. I’ve mentioned this several times here. Go to URA website. Under Property Market Data, retrieve Prices of Private Residential Units Sold by Developers Nov 2019 data. Scroll down for the total number of unsold units. The number of unsold units and new units with planning approvals are also in URA Release of 3rd Quarter 2019 real estate statistics. As of 3rd quarter 2019, there was a total supply of 50,964 units (excluding ECs) or 54,686 units (including ECs).
Magnum opus! Oooo…love this artistry when it intersperses Frozen ll text.
Keep them coming, Vina.
I felt it coming. In the short period, we have new launches lauding sales and then REDAS boss pleading with authorities about extending ABSD period. Then analysts from agencies trying to talk up the market. The 5-year ABSD gun hasn’t even triggered yet. What contradictions!
Thanks Fred. The fun part about being an independent blogger is you can have your topic, viewpoint, approach, imagination and creativity all at your disposal.
Yes this is just the beginning of the ABSD and QC problem. We will see it starting to come next year and will peak in 2022 and 2023.
I wonder given there is a glut of new condos to clear in the next 4/5 years, would new condos then present a better deal than resale condos?
In part because existing condo owners would be reluctant to sell their current units at below their original purchase price.
Something like new cars may have a lower annual depreciation than resale cars.
Whether owners of resale units are willing to sell below their purchase price shouldn’t be your concern. You should target at buying a home that has good value for money. If you buy new condos set at “future prices” now, it takes a very long time for your new home’s value to be above your purchase price. On the contrary, when there is a big price gap between the new and the resale market, you have a buffer there and a higher potential for value appreciation. Years later, units in both the new and resale condos will all be considered as resale units anyway. (By the way, new cars depreciate the most in the first year.)
Thanks for your very sensible advice! Do you see the government easing on the cooling measures next year given the appeal by the developers?
Unlikely. And I have already given the four main reasons in this blog post.
Hi Property Soul,
Great analysis of the private market. Is there also a housing glut in the HDB resale market?
I don’t specialize in the HDB market. You may find the answer in Ku Swee Yong’s presentation on “Old Wives Tales About The Residential Property Market (Part II)” at https://youtu.be/BQo8Rg3Xlbc
However, we are living in strange times, ridiculous amount of liquidity flowing into Singapore’s property market coupled with central banks eagerness to cut interest rates at any sign of trouble would just mean higher property prices despite poor economic indices in 2020, just like in 2019. Despite the glut, property developers will continue to sell at record prices as interest rates are low and banks are happy to grant them lots of breathing space.
Do you notice that the liquidity is not flowing into the right hands? Cheap money is offered to the banks which lent it to large corporations to buy assets and startups. This has inflated asset prices but does not create more jobs or raise salaries.The consumers are not richer. That’s why manufacturing, export and retail suffer.
Developers can sell at high prices. But we see the deteriorating sales at new launches amid supply gut. How long can they hold onto the unsold stock before the 5 year ABSD deadline?
I am quite certain that the government will do something to avoid a property market crash at the end of it all. After all, a crash would certainly not be in their interests, nor would it be in the interests of the banks. As they say, “The Titanic is too big to sink!”
The government never say they want the property market to crash. They just want “to maintain a stable and sustainable property market”. That’s why there are nine rounds of cooling measures for Singapore. By the way, is there any government in this world that would like to see their economy, currency, property market crash? Is this always under their control?
Vina, thanks for your reply. What I am saying is that “sustainable property market” means that the government will work to prevent wide swings in prices. If there is a danger of a property market crash, the government may indeed eventually extend help to the developers. And given our government’s interventionist policies in the property market, any crash would likely be due to a “black swan” event, or unforseeable circumstances. I believe that the government may attempt to actively prop up the market if there is truly a danger of a crash.