http://www.todayonline.com/business/...-pressure-2014
SINGAPORE — After a tumultuous year that saw the most severe set of property cooling measures and lending curbs hitting the bull’s eye in slowing down demand for private residences, 2014 may be the year when these policies will also cause prices to flat-line or even fall.
While the introduction of a seventh round of cooling measures in January had an immediate impact on sales, the growth in prices of new private homes continued to accelerate.
The total debt servicing ratio (TDSR) framework, which was introduced in June, put the brakes on to some extent, but buyers were still having to pay more for their new homes.
However, analysts say the market dynamics may have changed: A combination of cautious buyers and more homes hitting the market means that prices may stagnate or even fall in 2014.
“I think as long as the Government keeps the measures, we will continue to see a slowdown … demand is going to be less than this year and price growth may also slow down to almost zero,” said Mr Nicholas Mak, Executive Director for Research and Consultancy at SLP International Property Consultants.
His assessment took into account a weaker public-housing resale market, which shrinks the budget of Housing and Development Board flat upgraders and hence, negatively impact demand for the relatively resilient mass market private homes.
“Next year will be pretty much what we’ve seen this year: Sales volume and prices in the city centre will remain low (and) there may be some drop in prices in the city fringes. I think the mass market will be the one holding up, but eventually it will also be losing steam because the HDB market has slowed.”
The possible stall in price growth has been blamed on the TDSR framework: Not only is it effective in limiting the housing loan one can take, as it requires financial institutions to ensure mortgages do not push the total loan burden to more than 60 per cent of a borrower’s gross monthly income, it has also closed several loopholes within the cooling measures that investors previously took advantage of.
TDSR requires guarantors of housing loans to be listed as co-borrowers and purchasers, disabling investors’ ability to circumvent the lower loan-to-value ratio and additional buyer stamp duties by registering new purchases under another person’s name, while acting as the guarantor.
With that, demand shifted towards smaller units with lower overall prices, especially those located in the suburban areas, and developers started selling units at a more competitive rate to lure buyers.
“I think prices should start to moderate in view of the lower selling prices for new launches. With lower prices, buyers looking out for good deals may still come back into the market,” said Ms Christine Li, OrangeTee Head of Research and Consultancy. She also cited projects such as Alex Residences and Duo Residences as developments that succeeded in luring buyers due to their attractive prices and locality.
However, Chief Executive of HSR International Realtors Anne Tong said there is a limit to the down trend considering land parcels were bought at high prices.
“Price trends will hover around the same as this year … looking at the prices of land bids, there is not much room for a price correction. At best, developers will revise the price downwards to a maximum of 5 per cent to lure buyers to see the attractiveness of the development,” said Ms Tong.
New entrants into the property scene here have proven to be fierce competitors when vying for land. The recently closed tender for two adjacent sites at Upper Serangoon View saw most developers bidding more cautiously, but Chinese developer Kingsford Development won both parcels with bullish bids that were more than 10 per cent the next highest bids.
As some of these foreign players are both the developer and contractor, they have room to “play with” their margins and pay higher prices for land, noted Director and Head of Research and Consultancy of Suntec Real Estate Consultants Colin Tan.
“The number of developers is probably more than the number of sites available. Many foreign players are both the developer and the contractor, so they can play with the margin.
“But if we allow developers to continue bidding higher, we introduce more risks into the system, so the government should explore ways to ensure the bidding doesn’t go out of control,” he said.
Developers also have to be mindful of the incoming supply of completed units in the next few years. URA figures showed that the number of private homes that will receive their temporary occupation permits will increase from the estimated 15,824 units this year to 19,302 units next year and eventually 26,355 units in 2016.
“If demand remains at this level, which is actually still quite high, given the fact that there is a lot of supply, developers may have to suffer smaller margins,” Mr Tan said.
He added that investor sentiment also hinges on macroeconomic factors such as the tapering of America’s stimulus measures, which could potentially cause lending rates here to rise and continue to keep property buyers on the sidelines.
“Investors need to be convinced that tapering doesn’t automatically mean an interest rate hike. Once they understand this, I think buying will return.”
With such a situation at home, coupled with an uncertain global outlook, some developers have chosen to expand overseas to diversify their portfolios to better navigate the unpredictable business environment.
One such company is City Developments, whose spokesperson said: “We are watchful of these rapidly changing environments and will act swiftly as the situations require.
“We remain focused on sharpening our core businesses with eyes set on building new opportunities or platforms overseas.”
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