Gloomy days ahead for new home sales

The Urban Redevelopment Authority (URA) published February’s data on “private residential units sold by developers” or new home sales on Tuesday (March 15). For last month, developers only managed to sell 527 units. The sales volume is the lowest in 21 months, with 21.9 percent drop from 673 units in January. It is also a 66 percent plunge from 1,547 units sold last November – the month before December’s announcement of new property curbs.

Last week, The Business Times quoted comments from some property agency spokespersons on February’s poor new home sales. They put the blame on Chinese New Year and the declining new home inventory.

However, historical data shows that when we were in a thriving property market, new home sales could still be robust during festive seasons. On the other hand, with thousands of unsold units from new projects, there is no lack of new home inventory in the current market.

According to the URA data, transaction volume peaked in the 3rd quarter of 2021. Afterwards, the numbers declined month by month. The fact is: The private residential new home market is waning.

A waning new home market

For once not to the liking of the SPH media, Bloomberg followed up with the article “Singapore home sales plunge to lowest since May 2020 on curbs”.

To our surprise, the spokesperson from OrangeTee mentioned “the war in Ukraine roils equity markets and raises the prices of commodities” as the main cause behind Singapore’s disappointing new home sales. Her remarks left us scratching our head.

Since when new condo buyers all become fortune tellers to predict a month in advance that there would be Russian invasion and skyrocketing oil prices in March? Even if all these happened in February, how could a war in Eastern Europe affect the homebuying sentiment in Singapore, while a much closer UK could report record high housing prices?

If the URA data were released two days later on March 17, would she put the blame on Federal Reserve’s 0.25 percent raise in interest rate?

Anyone with reasonable memory could recall that, in the first two weeks of February, we were still celebrating Chinese New Year. Around that time, Singapore had a new Covid-19 wave with record number of Omicron cases every day. In the midst of the outbreak, we were slapped with wealth taxes from Budget 2022.

The Bloomberg article cited property cooling measures and higher property taxes the reasons behind property sales slump. The reasons make sense.

How many of us are confident that the private residential property market won’t be impacted by the new curbs? Which prospective homebuyers and private home owners are happy to pay higher ABSD and property taxes to IRAS?

Most TOP condos still have leftover units

In late January, PropertyGuru posted an article titled “29 TOP Condos in 2022 for Those Who Need to Move In Urgently”. With delays in construction and completion of BTO projects, it is a comfort to learn that 29 new condos will obtain TOP this year.

One more piece of good news: A check with URA’s data shows that the majority of these brand new private residential development still have many unsold units. Among PropertyGuru’s 29 new projects to complete this year, only seven are fully sold. The rest of the 22 not-so-new projects launched a few years back have new units remained unsold.

Think about it: If new condo projects were selling like hotcakes, why would developers compel to raise commission for agents from a low single digit to a double digit percentage, while they themselves are making a single digit margin?

How we miss the good old days in mid-1990s when homebuyers queued overnight in front of showflats. The next morning all units were sold out within hours. 2013 was a good year too. The Hillford, Alexandra Central and J Gateway were 100 percent sold on the first day of launch. Then came 2017 to 1st half of 2018 when the media told us that new projects were 70 to 100 percent sold over the launch weekend.

Then, out of the blue, the government implemented additional cooling measures on 5 July 2018. Gradually, no media has interest to report new units returned to developers every month, or keep track of unsold units in these projects.

1) 2022 TOP projects that are 100 percent sold

The sales performance of new condos depends on location, pricing, layout, marketing strategies, etc. Smaller projects might be easier for a sell-out.

The seven new condos in the table below all took over 2 or 3 years to clear all the units. Considering the long period to sell, so many returned units, and reissuance of option for buyers, it is really not necessary to rush to a sales gallery during a project’s first launch, unless you are a property agent.

2) 2022 TOP projects that have leftovers

Half of the 22 projects in the table below have over 50 percent units unsold. The 22 new condos have a mix of big and small projects. They can be from large or boutique developers. Among them, 12 are in CCR.

(Disclaimer: This post is not meant to recommend purchase of any new condo. I am not getting any advertising fee or agent commission from developers of these projects. Personally, I have no interest to buy off-plan properties because I believe WYSIWYG. Read “Why I only buy 2nd hand properties“.)

Hard times ahead for developers’ new home sales

For developers, it will continue to be a bumpy ride ahead in Singapore’s private residential market for three reasons:

1. New home inventory waiting to be cleared

Although we hardly see any new launch these days, there is a long queue of over 40 new projects in CCR, OCR and RCR waiting to be launched.

Developers are holding back condo launch because of lack of confidence to do so. Uncertainties in new project launch is no different from the current wave of Omicron cases – no one can tell how bad it can be and how long it will last.

According to the URA data, excluding ECs, the market still has 3,611 launched but unsold units and a total of 7,957 unsold units. Holding back new launches can limit supply effectively. It helps to clear the existing stock and create a “declining new home inventory”.

2. Costs and obstacles are stacking up

Under immigration and logistic challenges in this pandemic, developers are already struggling with higher material, labor and construction costs. In fact, REDAS admitted that developers are having difficulties meeting project completion timeline. They also face immerse pressure from higher ABSD that came with last December’s new cooling measures.

After December’s announcement of new cooling measures, REDAS appealed to the government to differentiate the remission criteria for projects of different sizes. It hoped the authority can allow some developers (especially those recently granted OTP for development land) a longer time to exercise the option. Unfortunately, their requests fell on deaf ears.

Starting March 1, development charges for non-landed residential use are raised an average of 0.3 percent. This is on top of a 10.9 percent increment in the previous revision in September 2021.

3. End of good old days with low interest rates

In Berkshire Hathaway’s annual investor letter published end of February, Warren Buffett said all investments, including “stocks, apartments, farms, oil wells, whatever” are overpriced due to low long-term interest rates.

Imagine investors can easily borrow cheap money from the banks with close to zero interest rate. When prices go up, buyers can simply borrow more. Whatever high prices the investments are sold in the market, they will look very affordable. In other words, whatever valuation of these assets is meaningless.

Governments notice asset bubbles are growing. But at least they benefit certain industries and people who own these assets. On the other hand, with an expected prolonged pandemic, they know that there is a limit to their relief measures. Their options are printing more money, keeping interest rates low and raising taxes. Money printing accelerates inflation. Low interest rates shoot up asset prices. Higher taxes help to replenish depleting reserves by taxing those who buy and own assets that have ballooned in value.

– “Property cooling measures, here we go again!”, PropertySoul.com

Federal Reserve just raised interest rate for the first time at 0.25 points, while signaling six more hikes to come. The end of the low-interest era will not only dampen property buying mood. It will also have a big impact on developers who survive on high leverage from banks and issue new debts to cover old ones over the years.

In a prolonged pandemic, first we have reflation (generous relief packages from the government to avoid recession). Then we have inflation. Now Wall Street experts are predicting stagflation to come (high inflation amid economic stagnation and high unemployment). (Read “Most Wall Street Experts Now Predict Stagflation — Here’s What That Means For Investors And The U.S. Economy”, Forbes, 15 March 2022)

Wrong bet of developers in the Singapore residential market

Singapore is well known for its harsh property cooling measures. Since Covid-19, governments all over the world keep printing money, cut interest rates to boost asset prices. Housing prices skyrocketed in many countries. But we can hardly find a country like Singapore that the government will impose property cooling measures after a 10.6 percent annual increase in private home prices.

Furthermore, from past experience, the property curbs won’t be lifted with falling property prices. Take ABSD and TDSR as examples. After their enforcement, private home prices dropped 11.2 percent in 2016 from the peak of 2013. Developers and property agencies were betting on the lifting of ABSD. There was Deferred Payment Scheme for homebuyers to exercise OTPs on a later date. But the government stayed firm to ensure that the restrictions were here to stay unless we see a “meaningful correction”.

After 2013, many local developers started venturing abroad. The few biggest Singapore developers have diversified their investments overseas anyway. However, some local developers soon realized that it was not so easy to do business overseas. Singapore was a more friendly market with advantages of easy bank financing, buyer progressive payment, etc.

In 2017 and 2018, developers returned home to bid aggressively in Government Land Sales and en bloc sites to replenish their landbank. However, the property boom was short-lived. There were harsher home purchase restrictions from mid-2018. When developers finally see the hope of more homebuyers in a pandemic and prices start to climb, they met with another big blow with new cooling measures in mid-December 2021.

While these developers were back home, the housing market in foreign countries flourished. Prices soared. Developers lamented that they missed the boat.

According to the Knight Frank Global Price Index Q3 2021, the annual increases in property prices for major countries are as follows:

– South Korea 26.4%
– New Zealand 21.9%
– Australia 18.9%
– United States 18.7%
– Canada 17.3%
– United Kingdom 11.8%

In comparison with the countries above, non-landed private home prices in Singapore only increased 7.5 percent over the same period.

– “Property cooling measures, here we go again!”, PropertySoul.com

Food for thought

In November 2017, Cheung Kong’s Li Ka-shing sold Shanghai’s Century Link and Hong Kong’s The Center for record $2.96 billion and $5.15 billion respectively. The buyers were from mainland China.

With funding from the two deals, in June 2018 he paid £1 billion to acquire 5 Broadgate in London and tenanted it to UBS as the bank’s London headquarters. The rental return of the 17-year lease was more than doubled that of The Center in Hong Kong. Last December, at the peak of the UK property market, Li sold 5 Broadgate at £1.25 billion to the Korea National Pension Service.

It’s all about timing. Buy low sell high. Enter and exit a market at the right time. Find the right thing to buy and sell to the right buyer. Maximize return while holding the asset.

Well, there is only one Li Ka-shing. We are talking about a completely different breed here.

If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.

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