Why private home buyers aren’t buying now

The pool of private home buyers is fast shrinking in the current property market. While HDB resale flat prices are on the rise, why are HDB owners not upgrading? Other countries are fighting hard to avoid slipping into recession. In contrast, the economy of Singapore still looks fine at least on the surface. Where have all the private home buyers gone?

Private home sales continue to disappoint

According to URA’s 1st quarter 2023 real estate statistics, the market sold a total of 4,121 private residential units in the last quarter. This is a year-on-year decline of 23 percent from 5,343 units in the same quarter last year. In those good old days in 2021, the market sold an impressive 7,925 private residential units during the festival season in the 4th quarter. 2021 3rd quarter we had the ghost month but buyers snapped up 9,083 new private homes anyway.

Those were the days.

In this 1st quarter, despite a few highly advertised new launches, developers sold only 1,256 new units (minus 62 returned units from originally reported 1,318 units). This is a 31 percent year-on-year fall from 1,825 new units sold in the same quarter of 2022.

This is not the worst. The previous quarter (4th quarter of 2022) agents sold an embarrassing 690 new units – the lowest since the 4th quarter of 2008 amid the Global Financial Crisis.

Are high prices and high interest rates affecting affordability? Or are private home buyers holding back in anticipation of a price correction?

“For the whole year of 2022, developers sold a total of 7,090 new units. This is a far cry from 10,000 to 13,000 units estimates by the property agencies. The new private home market has transacted 45.6 percent less than 13,027 new units sold the previous year. Similarly, the total number of resale units sold last year is 13,526. Again this is 32 percent less than 19,962 resale units in 2021.

With the absence of cheap money, the once heated private home market quickly cooled down. 2022 is a year of rising mortgage rates and falling affordability that will carry into 2023. The private property market will remain subdue this year.”

– “5 things we already know in 2023”, PropertySoul.com

How the government add salt to the wound

This Wednesday (April 26) before midnight, MOF, MND and MAS jointly released the press release “Measures for a sustainable property market”. From April 27, citizens and PRs need to pay 20 to 35 percent ABSD. Foreigners’ ABSD is doubled from 30 percent to 60 percent for purchasing any residential property.

In recent years, our government never failed to give us surprises on special occasions: We had a Christmas gift of higher ABSD, lower LTV and tightened TDSR on 15 December 2021. Seven months ago on 29 September 2022, there was a Deepavali surprise on TDSR revision and 15-month wait to downgrade to public housing. This Valentine’s Day we received a present of higher buyer stamp duty. Now during Hari Raya and before Labour Day, another surprise gift of higher ABSD across the board.

For this long weekend, the government want private home buyers to know that you are always on my mind. Time after time, all these sudden announcements take my breath away by killing me softly with his song.

Nonetheless, the industry stakeholders told us that “the mass market home buying by Singaporeans and permanent residents will be largely unaffected”. They are trying to convince us that, despite high interest rates and property prices, on top of higher BSD and ABSD, over 40 new projects to be launched with a total of 10,000 to 12,000 units will still be selling well.

These so-called analysts also insist that the high net worth foreigners will still buy because of Singapore’s “political and social stability”. The ultra-rich foreigners won’t know other politically and socially stable countries that impose zero ABSD on luxury properties plus free citizenship. And these foreigners have no idea where to park their money except high-tax luxury homes in Singapore.

No wonder we only had 264 foreign homebuyers last quarter. And that number includes foreigners staying in Singapore waiting for their PR.

Why private home buyers are stuck and can’t buy now

There are three major reasons why private residential transaction volumes are low and will continue to fall in the coming quarters.

1. HDB upgraders are priced out of the private home market

There is a recent Business Times article “From HDB to condo: Upgrading quest has become more challenging”. It said private home buyers with HDB addresses now made up only 42.6 percent of private residential transactions. This is the first time in 15 years. Low affordability makes it hard for HDB owners to upgrade.

A recent PropertyGuru poll found that 55 percent of those surveyed may defer their purchase till property prices stabilise and inflation falls. Twenty-four percent are likely to shelve the idea altogether. From the 2nd half of last year, nearly four in ten felt priced out of the market. Twenty-five percent felt somewhat or definitely unable to buy a property.

2. High interest rate means low affordability

“In every society, the wealthy is the minority. We can’t depend on them to create enough demand and to drive continued economic growth. The solution is to encourage the majority to take up loans – with low interest, by installments and deferred payment.

Many homebuyers define “affordability” as their ability to settle minimum downpayment and minimum monthly instalment after borrowing maximum loan-to-value. Their definition of affordability is valid only when interest rates are low.”

– “5 things we already know in 2023”, PropertySoul.com

In less than a year’s time, 3-month compounded SORA has jumped 4 times from below 1 percent to 3.6 percent. As billionaire investor Sam Zell said, the Fed screwed up by allowing zero interest rates to go on too long. And we are just beginning to pay the price for that.

High interest rates, high property prices and high stamp duties are pricing many potential private home buyers out of the market. For homebuyers, they mean higher entry cost. For investors, they mean lower yield.

3. Those who can afford but won’t buy now

Fortunately, many homeowners managed to lock in a low mortgage rate before interest rates rise. But that is exactly the reason why they can’t change their home now. Why would they sell their home, buy a new one at a high price, and sign up a new housing loan with high rates?

With an existing housing loan, HDB dwellers cannot upgrade to condominiums. Condo homeowners cannot move up to landed properties. Private homeowners cannot downgrade to public housing because of the 15-month wait. We are all stuck.

What about the cash-rich who can afford to pay in full and don’t need a loan?

Wait, a bank offers 4 percent interest for a 12-month fixed deposit with minimum $250,000. That is tax-free interest of $10,000. For $1 million, total interest turns out to be $40,000. That $3 million cash originally set aside to buy a private home can now make extra $120,000 without lifting a finger. They don’t mind waiting. With new cooling measures coming every few months, the market is likely to see some price correction a year later.

We don’t have a choice apart from sitting on the fence. Most of us are not property investors. If we are buying a portfolio of properties, we can afford to have some bought at higher prices. However, most of us are only buying one home for our own stay. If we buy when prices are high, next time when prices fall, we can’t sell our overpriced home to buy a more value-for-money one. No one want to buy high and sell low to buy low.

Do we have enough demand in this market?

Developers have over 40 new projects waiting to be launched. But is the pool of homebuyers big enough? Similarly, the government has a list of land sites to launch in the supply pipeline. But is there enough interest from developers?

Early this month, we have the first government land sale in 2023 (beside the private assisted living site). Unfortunately, the Lentor Gardens tender only received one bid. The bidding price was even lower than pre-pandemic level.

Government land sales in other countries are facing the same fate amid high interest rates and uncertain economic outlook. It is a dilemma to release sites for auction these days. Governments need to replenish depleted reserves through land sale. But now is not a good time to do so.

In July 2021, GuocoLand beat eight competitors to win Lentor Central site at $1,209 psf. Two years later, this time GuocoLand had no competitor and bought the Lentor Garden site at $985 psf. It is like you bought something when everyone is buying. Then the next day you find it selling at a much lower price. As the end, you can’t resist the temptation to buy the same thing again.

Is it a sound strategy for GuocoLand to put the eggs in the same basket? In a short two years, seven plots of land in Lentor that can build a total of 3,443 units were launched. Do we have enough private housing demand in Lentor? Don’t forget, in the last two quarters, we only sold 690 and 1,256 new units for the whole of Singapore.

Property agents are working really hard now

The CEA (Council for Estate Agencies) shows a record of 34,427 registered property agents as at January 1, 2023. Back in 2021 and 2022, the number of agents is 30,399 and 32,414 respectively. In other words, the pool of property agents is growing every year. In contrast, the pool of private home buyers and private home transaction volumes are shrinking year by year.

Is a private residential market selling 4,121 units and 1,256 new units a quarter, or 1,374 units and 419 new units a month “sustainable”? Our government think so. Property agencies think so too.

To fulfill their management’s wish of “healthy pent-up demand”, property agents are working extra hard these days. Around dinner time another property agent distributed pamphlets of a new launch in our housing estate. Instead of dropping them in the mailbox, she pressed every doorbell and talked to every owner who answered the door.

Unlike the busy days occupied with closing deals in 2021 and 1st half of 2022, many agents now have free time to put up interesting but questionable property ads in the social media. The same ads were seen in 2018 and 2019 in a slow market. The same catchy phrases are now being reused and recycled.

Food for thought

This week IRAS is encouraging whistleblowers to call out private home buyers using 99-to-1 deals to evade ABSD.

The truth is: The developers that launched new projects, the agents who shared the 99-to-1 trick, the conveyancing lawyers who added this special clause, the banks which approved housing loans for buyers with 1 percent property ownership – all these “innocent parties” must have the full list of private home buyers who made 99-to-1 arrangement. They can now come forward to be whistle-blowers and write to IRAS, with their identity being kept confidential. With up to $100,000 reward for each case, millions of dollars can be easily made in this increasingly challenging private home market.

Who cares whether private home buyers are buying or not buying now.

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