2020 Year of the Rat is not just another Lunar New Year. Everyone received far more updates on Wuhan coronavirus than auspicious greetings. Instead of last-minute shopping for Chinese New Year goodies, there was a frantic search for surgical masks and hand sanitizers, especially after the Ministry of Health assured the public that there is sufficient stock of masks to go around (and all of them are going, going, gone).
How deadly is coronavirus?
SARS happened between November 2002 and July 2003, with 8,098 cases and a death toll of 774 in seventeen countries. In Singapore, 238 people were infected and 33 died.
It is still early to tell the severity of the new round of epidemic outbreak. Given the two-week incubation period, the number of cases and deaths is going to rise in the coming weeks.
According to Flight Master, Singapore is the second most popular destination after Thailand for travelers from Wuhan this new year holiday. Changi Airport received 10,680 passengers flying from Wuhan to Singapore between December 30 and January 22. The Ministry of Health said there are now about 2,000 recent travelers from Hubei in Singapore.
Last weekend, there was a petition to the Immigration and Checkpoints Authority to request for a temporary ban on travelers from China and gathered over 35,000 signatures in less than a day. From tomorrow noon time, visitors with recent travel history to China will not be allowed to enter or transit in Singapore.
According to the Singapore Tourism Board, 3.4 million visitors from mainland China came to Singapore in 2018, making it the top country for inbound visitors. In 1st quarter 2019, Chinese tourists are our biggest spenders. Nearly a million Chinese visitors spent over $1 billion (excluding sightseeing, entertainment and gaming) here, with half of the amount spent on shopping.
Without their patronage, how will that affect the business of our airlines, hotels, retail and casinos? With poor quarterly results, how can companies continue to take up so much office space and employ so many staff? With the threat of retrenchment, who dare to upgrade their homes when they may not be able to service their existing loan?
A deadly disease can trigger the domino effect in many industries: The travel industry catches the flu first, before spreading to hotels, F&B, retail and manufacturing. In real estate, it hit the hotels first, followed by the retail, office, industrial and residential property sectors.
Industries that catch the flu
As the saying goes, pray for the best and prepare for the worst. Let’s go back in time to review what happened during SARS in 2003 to get some hints on what may happen with coronavirus in 2020.
The first SARS case in Singapore was reported on March 1, 2003. For the month of March, visitor arrivals fell by 15 percent. By April 13, the number plunged 61 percent.
For the following few months, Singapore government advised the public to stay home. Travelers coming back home were required to self-quarantine. Hotel rooms and tourist places were almost empty. Shopping malls and restaurants were dead quiet.
Relief measures from the government came to the rescue. On April 17, the government announced a comprehensive S$230 million relief package to help counter the economic impact of SARS outbreak. To help the travel industry, there was 30 percent rebate on aircraft landing fees and 50 percent reduction in port dues for cruise ships. A bridging loan programme was introduced for tourism-related SMEs.
1. The hotel sector
Hotels were hard hit by high vacancy rates. To avoid mass layoff of unskilled labor in hotels, foreign worker levy was halved and training grants were increased. On April 24, there were additional relief measures for about 100 gazetted tourist hotels. They were given a rebate of $2,000 plus 30 percent of the property tax payable with effect from May.
InterContinental’s Asia Pacific revenue was down 27 percent year-on-year in 2003. For this round, the financial loss of individual hotels will depend on their percentage of business and their number of rooms in China and coronavirus-affected countries.
2. The office sector
SARS came at a bad time when the office market was underperforming. Already hammered by oversupply of office space, office rents plunged to 14-year low in the 1st quarter. According to JLL, prime office rents dropped 21 percent. Monthly rentals of offices in Raffles Place were down 20.7 percent to $5.45 psf.
3. The retail sector
By mid-April 2003, retail sales declined 10 to 50 percent. Restaurant owners saw their revenue being halved. On April 24, the government announced property tax rebate packages for owners of commercial properties, including shops, F&B outlets, childcare centres, cinemas and theme parks.
This time the coronavirus relief package will come in time depending on the virus’ severity and impact on the Singapore economy.
What happened to the residential property market during SARS?
Before SARS broke out, the Singapore economy had already been weathered by the dotcom bubble, US recession and the Iraq War. Private residential property price index fell 37 percent from the peak of 129.7 in 2nd quarter 1996 to 81.6 in 1st quarter 2003. On March 1, 2003, the government finally suspended the seller’s stamp duty on residential properties imposed since 1996.
With increase in retrenchment, unemployment rate in Singapore jumped to 4.8 percent in 3rd quarter 2003 from 3.6 percent before SARS outbreak. Jobless rate was at record level. Bankruptcy was also at the highest level since the Asian Financial Crisis in 1999. The number of bankruptcies climbed 23 percent in the first seven months and increased 26 percent from a year earlier. By September 2003, individual bankruptcies had risen 44 percent from a year ago.
In 1st quarter 2003, the number of mortgagee sales rose to a record of 488, an increase of 19 percent from the previous quarter. Many people were downgrading from private properties to HDB flats. Prices of private homes slipped to their lowest since 1999.
On the other hand, cash-rich buyers were able to bag some really good deals in 2003:
1) In July, OCBC Bank sold 11 of the 27 mortgagee units at Robin Regalia, a freehold condo at Robin Road, at 30 percent discount with average selling price of $700 psf.
2) One of the twelve freehold detached houses at The Glencaird Residences was sold for $8 million. The buyer bought the 15,000 sq ft Good Class Bungalow at District 10 for $526 psf only.
3) In August, Cluny Court changed hands at $15.5 million or $354 psf through mortgagee sale. It was a 22.5 percent discount from the asking price of $20 million. The freehold commercial and residential building at Bukit Timah Road had a price tag of $51 million back in 1997.
What happened to the industry stakeholders?
To launch or not to launch, that is the question.
Developers faced the dilemma of holding back projects or proceeding to launch during the SARS crisis. If they launched, the new units had to be priced to sell. If they didn’t launch, there would be no revenue for the coming quarter. But low margins were still better than no sales. Some developers decided to slash prices for new projects and to offload units on hand.
Below is the list of new projects launched between April and June 2003:
1) The Pier@Robertson by CDL ;
2) Gardenvista by Far East ;
3) East Shine by Fragrance Properties;
4) Stevens Loft by Singapore Land; and
5) Icon by Far East.
Only 506 new units were launched by developers in 1sst quarter 2003. By the end of the year, a total of 5,216 new units were launched, a 45 percent decline from 9,507 units in the previous year in 2002. With over 30 new projects to launch in 2020, guess what will be the decision of developers?
Facing uncertainties of their current jobs, more people joined the real estate industry as a full-time or part-time property agent.
Other property-related businesses affected by the market downturn included banks’ housing loan departments, conveyancing lawyers and renovation contractors. Smaller contractors were asked by the insurance companies to pay a hefty sum as guarantees for developers. By May 2003, the construction industry was shrunk 12 percent.
What can 2003 tell us about 2020?
It is a dilemma for the property market: We don’t want to see a free fall of home prices in 2020. But if that doesn’t happen, it won’t trigger any relaxation of cooling measures imposed by the government over the past few years. Taking the hint from 2003, the relief package is likely to include property tax rebates and waiving of seller’s stamp duty.
Is it a good time to buy properties during a crisis? Yes and no.
You may be excited by the idea if you are a value investor like me. Back then, Pier@Robertson was launched at a bargain price of $900 psf in May 2003. Now a unit at the freehold condo is valued at $2,000 psf. The following month Far East sold Icon at $700 psf. Prices of the Tanjong Pagar condo are now at $1,700 psf.
But the real good deals were in the resale market. There were many fire sales and prices were very negotiable. Between March and June 2003, I went for thirty-seven flat viewings and bought a bank sale unit by end of June. I picked it up at $300 psf and sold it seven years later at $670 psf.
Personally, I felt safe going for flat viewings during the SARS period because I was the only buyer there most of the time. The doors and windows were opened. The only person I was exposed to was the property agent. The risk was low since the agents didn’t get much business at that time.
However, recovery of the property market takes time. It can’t immediately spring back to its previous height after a major correction. Every time when a country survives a recession, it takes some time for the economy to get back on track before the bottom-out of property prices.
Even if you have the financial means to enter the market during the bad times, you must be prepared to wait out the storm. Don’t be surprised by a prolonged slump in home prices that shows no sign of abating. It may take a year or two, or the bad days may linger for years. When SARS was cleared, the private home market continued to be weak. It didn’t really pick up until second half of 2006.
It is critical to have holding power. Make sure the rent of your investment property can well cover the mortgage and expenses. If you buy the wrong thing, it is difficult to sell. Flat viewing, let alone buying, is the last thing on people’s mind in a crisis.
The length and depth for the spread of coronavirus will determine its impact on the Singapore economy and the property market. The longer it lasts, the poorer our economy, the higher the unemployment rate, and the softer the property market.
Recovery will depend on how strong the fundamentals of Singapore’s economy and the real estate market. Are they already slowing down before the arrival of the black swan? Is there already a big supply and demand imbalance in the market before the onset of the epidemic? If the answers are yes, the recovery curve is likely to be a U-shape than a V-shape. And the size of the U-shape will be everyone’s guess.
If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.
My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.
A very good one Vina. I was hoping you will come out with an article like this, and you did, thank you so much.
I was analyzing the market between SARS and now as well.
But you did a far better job than I.
Cheers and a Happy New Year !
You are most welcome. Glad that I can share this topic with like-minded people like you.
Great job again. The strategy of picking up a $300psf unit in 2003 is a brilliant move. I too practise crises investment. If one wants good stuff at cheap price, the best time is in a black swan event. In property sector, the best time is high unemployment where gloomy pessimism reins. Take cue from the Govt when it has to use our reserves to boost the economy.
Can’t agree with you more. Value investors who enjoy fishing at the bottom can take the cue from the government when there is announcement on relief measures.
Developers and property agencies have been lobbying for withdrawal of property cooling measures every now and then. But we may not want that to happen. Because when the time really comes, that implies the property market is really bad.
Hi! I’m looking to purchase my first property for own stay, and was looking at a new condo as also a lever to grow my wealth. The condo was launched last year, and prices everywhere generally seemed high before the onset of the nCoV virus. I was about to make the purchase, but am now not really sure if this is a good time to do so. Do you have some tips on whether I should continue with this, or go for a resale/upcoming launches instead?
If I were a property agent, I would convince you to buy right now (because it’s probably going to be a long time before I close my next deal). With or without coronavirus, there is still a big mismatch between supply and demand in the private homes market. Don’t buy into anything when prices are only starting to correct. Let the dust settles first.
But is it possible for an existing launch to drop in price? Or is that only applicable for new resale and launches coming onto the market at this time?
If there is continuous new supply of new projects but not enough demand from the market, developers have to lower prices to clear the stock before the ABSD deadline. Some new launch projects are already lowering psf prices in subsequent phases. The resale market will follow the footsteps of the new sales market.
Are ongoing ECs l projects also following same trend if still got balance unit by next yr?
ECs give buyers a wrong impression that they offer better value for money because of the subsidies from the government. But if you look at the launch history of all the EC projects, only owners who bought first-hand in a buyer’s market at a reasonable price stand the chance to be profitable when they sell after the 5-year MOP.
Is it a good time now to buy a resale freehold condo property in district 9, with an upcoming MRT ready next year?
I am worried that price may drop further in the next few months to years and I am buying into a disaster.
Should I hold on and wait for dusts to settle in the coronavirus period which may take months and economy may take longer to recover?
But I may not get the exact type and stack.
This is the property type I have been looking for and will also come back to this same property type if I were to not buy now. I will still buy later.
Question is to commit now? Or wait till another exact one comes along in the next few months/ years?
Appreciate your advise.
Whether you buy now or hold back is up to you. But I am not buying now.
Hi Vina, your long time blog reader here 🙂
I’ve been waiting for market correction or downturn for years but it never really happen, i.e. price just keep going higher and higher.
The long wait has made me question my decision to stay on the side for so long. How do you adjust yourself to be “always ready” when the “right time” has finally come?
I felt the other way round. I kept telling people that I am buying in the mid-2000s and 2009. They said that I am always talking about buying and I am buying again and again, that I must be either ignorant or crazy …
Unfortunately, private homes in Singapore is like any asset class. There are only certain times that you should buy while other times it’s a waste of your time and money to enter the market. If you know nothing about investment and you just want to buy a home, buy first hand from HDB. If you are a retail property investor, you can’t control governments printing money and inflating property prices, you have no choice but to wait. And while waiting, there are other better investment opportunities compared with properties at any time.
Hi,
Can I ask where do I find the number of returned units per project? Squarefoot website doesn’t publish the data anymore. It was available on Edgeprop website but it seems to have disappeared?
You can check the monthly URA data on “private residential units sold by developers”. The actual units sold last month is calculated by a project’s cumulative units sold this month minus reported units sold this month. Any discrepancy between the actual units sold last month and the reported units sold last month is the number of returned units this month.
Looking at the queues this weekend at The M in the midst of a health crisis just reinforces the perception that property prices will not just stay firm but rise this year. The developer just announced they have sold 70% of the development ( not units released) over the the weekend. All these are again evidence of the real market economics divorcing away from property demand and prices. The world today is just simply very different from 2003 as there is just too much liquidity. As such, trying to project property price trends from 2003-04 onto current circumstances would be a futile exercise.
No one is comparing 2003 and 2020 property prices here. The whole year in 2003 PPI only fell 1 percent because prices couldn’t fall lower. But 2020 the market is still not too bad so there is much more room for market correction. PPI is misleading because it can continue to go up if developers continue to roll out new projects at higher prices and the fools still rush in. I remember every time right before the a recession (even during the beginning stage of the recession), there are still many buyers in the market. The numbers only drop as the recessions progress. I don’t mind seeing these “early birds” buying now. Next time we will get better deals from these fire sales than from the developers. In any financial market, if no one buy at the peak, where can value investors get bargains next time?
I like this thought
I too am waiting on the sidelines coz it is a bad time to buy now. I accumulated a huge cash pile over the years and am patient and not reacting to my property agent advising to buy now than later.
I was also finding it suspicious to see a news article that interviewed the Wing Tai Deputy MD published in the ST on Feb 18 or 19. His comments probably impacted the kiasu people who turned up at the M Condo
The more property developers come out to assure prospective buyers, the more concerned they actually are behind the scenes
You are absolutely right. If the new project was so popular, it would have been 100% sold the first day just like last time. No need for so many gimmicks and still have many unsold units after months or even years of launch.
Thanks vina. Your prediction about office property is already happening in Europe (article below) but have you seen any indications in Singapore?
https://www.bloomberg.com/amp/news/articles/2020-03-10/natixis-backed-firm-delays-1-billion-office-sale-on-virus-woes
I thought Singapore’s “booming” office market has already changed direction since Temasek’s M+S sold off their Grade A office tower at DUO last July?
The dynamics & impact of the spread of the Covid 19 since your posting has changed dramatically. All bets are off…in my view.
Agree, much has changed since that, but yet we do not have any clearer idea what lies ahead.
Thanks for sharing your thoughts and experience, Happy that you made your profits during SARS. This time around, though the pandemic is much more widespread and devastating, we have yet to see a major price correction like the past crisis. I think largely because of the cooling measures that were in place which result in home owners having more holding power than the past. So fire sales are rarer. Developers generally are also holding up because buying interest is still relatively strong.
I didn’t make my profits during SARS. My properties were bought during the prolonged period of downturn from late 2003 to early 2007. You can say that it won’t make much difference with or without SARS. Of course you can choose to look on the surface for every crisis like most of the people. Asset markets are able to hold up for some time for Fed’s USD700 billion and many governments giving out taxpayers’ money. Look clearly which parties are actually benefiting from the cheap money and close-to-zero interest rate? Is that the institutional investors or retail homebuyers like us?
By the way, developers’ new projects with strong buying interest is a joke. It’s a no-brainer to jerk up sales numbers with the same old tricks. https://www.businesstimes.com.sg/companies-markets/fear-of-missing-out-beware-agents-hype-on-new-home-sales-and-prices
i went to Daintree showflats this year right before the lockdown. one of the things that agent said that caught my attention was “even if there is unsold units at the end, the developer will just buy their own units back and rent it out”. it was like he just wanted to drive in the point that the prices will never drop. it has been 6 months since and i wonder whether the agent will still say the same thing during a looming recession.
So far only Far East has kept their units in some projects for leasing. It is because the developer has a leasing arm. Other developers would rather clear the unsold units at a discount than getting the hassles and nightmares of managing rental units, especially in this tenant’s market.
Hi Vina, thanks for your sharing over the years. I’m also surprised that the resale property market has held up so far, even though rental market has already started dropping (many US & Europe expats seem to be relocating out of Singapore). However, at the same time, it seems that hot money may be moving into Singapore from Hong Kong.
My view is that resale prices will eventually follow the decline in rental yields, especially when mortgage deferments expire and interest rates start creeping up. However, whether is happens in 2021 or 2022 or later, is anybody’s guess. What do you think?
The property new sales and resale market is all about market confidence. Industry stakeholders must try every means to keep it up. After reality sets in, there is only so much that they can do. The rental market is a different story. There is no way anyone can create demand. Now there is still rental demand from people returning to Singapore for work or coming back to Singapore after end of overseas employment. But the high-end rental market is getting worse.
I won’t say hot money has all return back to the Singapore stock market. We should be grateful that at least the STI is slowly recovering for the time being. As Bloomberg said, Singapore is competing with Thailand to be the “worst performing” stock market in Asia this year -> https://www.straitstimes.com/business/companies-markets/singapore-neck-and-neck-with-thailand-for-asias-worst-stock-market
Hi Vina, as someone who is looking to buy her first property, I found your blog and your book (No B.S. Guide to Property Investment) very insightful and provided different perspectives for me to consider when going for viewings.
After reading this article and seeing the current news & trends, it seems like the market is not reflecting what happened in 2003, with the resale price increasing and the number of private home sales increasing.
In addition, despite the economic situation, we seem to be in a Booming stage of the property cycle, with a high market supply of property, high sales volume and increasing transaction prices.
However, the rental rates don’t seem to fit into the Booming stage as its been decreasing or stagnant for some time.
Would love to hear your thoughts on the current property market and its supposed misalignment with our economic situation and also the difference between rental rates and property sales.
Happy new year!
The impact of economic, financial or any other healthcare crisis can be seen on properties. It is necessary to make sure that you have all the necessary security and safety measure including insurances. Thanks for the above information.
Yes, better be safe than sorry.