Is Now A Good Time To Buy Property?
As we face the biggest crisis ever in the name of Covid-19, the big question is: is now a good time to buy property? Will our property market crash under the weight of an unprecedented pandemic?
The Ministry of Trade and Industry (MTI) has further downgraded this year’s GDP growth forecast to -7 to -4 per cent from -4 to -1 per cent. This downturn would be our worst ever contraction. The 2.2 per cent contraction during the 1998 Asian Financial Crisis came in a distant second worst. We are expected to enter into a recession this year.
On May 26, 2020, the government announced the fourth relief package of $33 billion to help fight the devastating impact of Covid-19. More than $72 billion, or almost 80% of the total $93 billion relief funds, are directed at supporting businesses and keeping jobs. This gives a glimpse of the severity of our situation.
The Common Sentiment
It is not surprising that many people whom I talked to felt that the market will have a significant correction. Even after showing them how remarkably resilient is our property market during our past crises, the feeling is that the Covid-19 pandemic is like none other that we had ever faced. It is by far more devastating and widespread in its impact. Hence, most people prefer to adopt a wait-and-see approach until the dust settles down.
In my recent article, “Property Prices Set To Tumble”, I actually offer various reasons why this is unlikely to happen. One of my readers was very skeptical and thought otherwise. I do not have any issue when someone disagree with me.
In his mind, he thought that developers would be desperate to sell off all their balanced units. He actually asked for a discount from the developer for one of the good-selling projects. After his offer was rejected, he totally gave up the idea of buying until he sees the day the property market crashes.
Just very recently, a buyer was about to give a cheque for a new project when he suddenly made a ‘U’ turn. Reason? His friends and relatives ridiculed him for buying a property now. Two days later, he went ahead with the purchase.
Many home buyers will face this dilemma: to buy or not to buy?
Reality On The Ground
Is there any buying activity during this circuit breaker where all showflats are closed, and viewings are prohibited? While the answer is YES, the volume is low.
277 private new homes were sold in April 2020, down from 660 in March. Of the 277, almost 100 were sold after the circuit breaker started on 7 April. While this number is nothing to shout about, it is still remarkable that people are buying when no viewing is allowed, except by virtual viewing.
May 2020 New Home Sales Shot Up By 75%
Despite the circuit breaker, the number of new homes sold in May went up by 75% compared to the month before. This may come as a surprise to many since show flats are all closed during this time, yet it did not deter buyers.
484 is a decent figure considering the circumstances. Looking beyond the number is the positive sentiment on the ground. Buyers are taking advantage of the discounts offered by developers. During normal times, this usually does not happen.
The strong buying interest is evident. My prediction is, once the circuit breaker is lifted, pent-up demand will drive up sales to new record. When that happens, developers will likely remove the discounts, and chances of prices going up is high.
Are There Fire Sales?
There will be fire sales, for sure, but not rampant. If it happens, it is usually in the secondary market where owners may dump their property due to fear or financial distress.
It can also happen to developers, especially amongst smaller developers.
Take Enclave@Holland as an example. Prior to Covid-19, the 26-unit boutique development along Holland Road was selling at an average price of $2,500psf. In March 2020, the developer sold the remaining nine units at an average price of $1,850psf, which is a hefty 26% discount.
Another example is 38 Jervois, a 27-unit boutique development in an exclusive neighbourhood. The developer, Prominent Land, sold 11 units when it was launched in 2016. Only one unit was sold in 2019. The project was TOP in March 2019. The developer had to sell the balance of 16 units by February 202 to avoid paying ABSD. The government gave them a six-month extension because of Covid-19.
On 3 June 2020, Prominent Land decided to launch a fire sale with a total discount of $7.1 million in order to avoid paying a $4.8 million ABSD. Within three days, all the 16 units were snapped up! Buyers enjoyed a discount between $275,000 to $547,230.
The question is when you do come across a fire sale, would you jump at the opportunity or shirk in fear that prices will continue to fall? Will you be fast enough to act?
Developers Are More Realistic
During the circuit breaker, Kopar at Newton is the best-selling projects. The developer, Chip Eng Seng, sold 83 units in April, of which 11 units from 7 April. Another 16 units were recorded in May.
Why was Kopar at Newton selling so well despite Covid-19? Partly due to realistic pricing. The sales price starting from $2,125 psf is considered attractive for a D09 project.
New project sales are still moving at a steady pace. This is because developers are offering discounts, mainly in the form of star buys. Developers, while wanting to maintain a certain margin of profitability, are also eager to sell and move their properties. The widespread discounts present to buyers an excellent opportunity to enter the market amidst the crisis.
Short Term Correction
We can learn so much from history. The stock market and property market seem to move in a certain predictable pattern.
From past crises, we learn that market will experience a sharp fall when there was a sudden turn of drastic unfavourable events. Stock market usually reacted almost immediately, followed by the property market.
Looking at the chart below, we can see the STI dropped drastically followed the dot.com crash (May 31, 2000), 911 attack (Sep 28, 2001), SARS (Mar 31, 2003) and Global Financial Crisis (Feb 27, 2009). After each crisis, there was a V-shaped recovery. Free falls are not indefinite because there are always buyers waiting for good buys.
During the current Covid-19, STI plunged by more than 31 per cent from 3252 to 2233 on March 23, 2020. As of June 10, 2020, STI has recovered by 25 per cent since then to 2800.
How about the property market?
Generally, the sales volume of the private residential market follows the pattern of our GDP growth. It’s simple logic: when GDP is strong, confidence level is high and buying sentiment is positive. During the past crises when we experienced contraction, sales volume dipped.
Our property prices were more susceptible during a financial crisis than a pandemic. Prices dipped drastically during the Asian Financial Crisis in 1998 and Global Financial Crisis in 2008, but they were followed by a V-shaped recovery.
The longest down period for our property market was from the Dot.com crash in 2000 till 2007. Conversely, the STI had a long bullish run from post-SARS till its peak in October 2007. Our property market was a bit laggy, picking up only from April 2007. From what we can see, SARS had very little impact on our property prices.
Looking at Chart 2, you will notice a very unusual trend between 2013 to 2017. During this period, the GDP and the sales volume of homes are both weak while property prices dipped only slightly before they picked up in 2017.
From 2017, on the back of poor economy, sales volume and property prices started to move up, until the government had to introduce one more round of cooling measure on 6 July 2018. Nevertheless, new home sales still hit almost 10,000 in 2019.
What causes the property market to be so robust while the STI performance and GDP are so weak? There are a few possible reasons.
With the US government printing a lot of money, the global financial market is flushed with liquidity. The property market becomes a good place to park these money. Hence we see a boom in property market in many countries. As a result, governments in these countries also introduced their own cooling measures.
Low Interest Rates
Borrowing rates are at about the lowest at the moment. It can be as low as 1.3% and will likely to remain low for quite some time. Low interest rate is definitely an incentive for home buyers because it helps to reduce the cost of home ownership.
SIBOR (Singapore Interbank Offered Rates) has dropped from 1.749% in January 2020 to 0.248% in June 2020.
If you have outstanding housing loan, this is a good time to refinance.
A Government-Regulated Market
Learning from the US sub-prime crisis, our government recognizes the danger of property market bubble. To circumvent this potential problem, the government started to introduce rounds of cooling measures since 2009. What these measures have done is to curb speculations and enforce prudence.
In the past, many speculators were burnt because they over-leveraged. Property flipping was a commonplace when quick money could be made. When hit by financial crisis, they could not keep up with the mortgage payments. Many actually went bankrupt.
Now, with Total Debt Servicing Ratio (TDSR) in place, we are able to cushion against the impact of a financial knock. Property owners now have more holding power which is the key to tide through a crisis.
Furthermore, during this Covid-19 pandemic, the government has implelmented home loan deferment scheme for property owners and ABSD extension for property developers. These relief measures help to soften the blow.
Singapore A Safe Haven
The last couple of years have been marked by political unrests and uncertainties in many countries. Brexit in Europe, protests in Hong Kong and political crisis in Malaysia just to name a few. Now we see racial protests in the US which sets a movement in many countries.
Against this background, many now see Singapore as a safe haven because of its political stability, strong governance, quality of life, good educational system and low crime rates. Many high net-worth individuals have to made Singapore their home.
Most recently, Chinese actress Vicki Zhao and her businessman husband bought a $27.65 million penthouse at Ardmore Park condo.
After a long lull period, prime district 09 is now seeing a return of foreign buyers, namely the Chinese. Lately Marine One Residences, TOP in 2017, is also experiencing brisk sales, with 22 units sold since the circuit breaker.
To Buy Or Not To Buy?
None of us has the crystal ball to foresee the future with great certainty. In the next six to twelve months, we may have a clearer picture how vulnerable or resilient our property market is.
On the other hand, if we buy with a relatively long term investment perspective, we should be in good standing with all the strong fundamentals our government has set in place for us.
If property prices do dip, it will present a small window of opportunity to home buyers. Many had reaped the financial benefits in the past when they took the plunge. With all the discounts offered by developers now, it is worth considering to enter the market. In the next couple of years, new home inventory may drop to a level where demand exceeds supply. The inevitability of prices moving up will then follow.
Drop me a note should you need advice on the best course of action for you. I will be more than happy to discuss with you further. You can book for an appointment with me using the calendar below.
Danny Han has been a licensed real estate agent since 2005. He also had five years of experience as a financial consultant. The insights and knowledge he shares in his blogs are the results of years of experience in helping many of his clients in their Property Wealth Planning.
Prior to becoming a real estate agent, Danny was a full-time church pastor (don’t be shocked!) for 23 years. Even now, he is still actively involved in church work and preaches regularly. He has also made six mission trips to Myanmar to-date.
Danny is a foodie, so during his spare time he would go with his kakis to try different “CNG” (cheap and good) food. (Be sure to check out his Holland food blog in this site).
Do feel free to drop him a Whatsapp message for a non-obligatory discussion if you are planning to grow your property wealth.