Singapore property at a turning point?

July 22, 2017


1. What was the most significant development this week?

Property markets don't turn around in a week. But data that comes out in early July often yields some insights into what happened during the first half of the year. Especially interesting are some of the most recent numbers which suggest that, after more than three years in the doldrums, Singapore's residential property market might just be on the verge of turning.

First, there is evidence of a revival of buyer interest. Latest data from the Urban Redevelopment Authority (URA) and research by PropNex shows that residential units sold in the first half of 2017 (including executive condos) jumped to 8,641, up 52 per cent from the 5,683 sold in the same period of 2016.

Buyers in the high-end market became more active as well. A report by List Sotheby's International Realty pointed out that sales of good-class bungalows (GCBs) and Sentosa Cove homes picked up in the first half of 2017 from a year ago.

Property supply is tightening. The number of units coming onstream over the next three years is far less than during the period from 2014 to 2016 when the market was oversupplied.

Price data is also encouraging. URA flash estimates for the second quarter show that prices fell just 0.3 per cent from three months earlier. This is the smallest dip in the 15 quarters since prices started to decline in Q4 2013.

Also this week, BT reported that Singaporeans are investing less in overseas property. Data from Real Capital Analytics and Knight Frank Research shows that outbound investment deals dwindled to 34 in the first half of 2017, from 144 last year and 503 in 2015. The value of transactions also fell. In short, Singaporeans are buying more property at home and less overseas. What's more, foreigners may also be buying more in Singapore than last year. Property and land deals added up to S$5.5 billion in the January-June period, against S$8.9 billion in the whole of 2016 - indicative of change at the margin. Add it all up and the picture suggests that the residential property market may be coming back to life.

2. Why is this a big deal?

One reason is that these signs of revival have appeared without much help from the government. Nearly all the property cooling measures that the government had progressively introduced since 2010 remain in place and will continue for the foreseeable future. As recently as June 29, the managing director of the Monetary Authority of Singapore, Ravi Menon, pointed out that it was "not time yet to ease the cooling measures", which "remain necessary". Moreover, the turnaround is happening at a time when the interest rate cycle is turning up; the US Fed has started raising rates off the floor and will continue, albeit slowly. This will be reflected in higher rates in Singapore as well. Another reason is, of course, the fact that property accounts for a huge proportion of household wealth. More than 90 per cent of Singapore resident households own their homes and residential property accounts for about 45 per cent of total household assets. Higher prices means an increase in household home-equity - which is also good for the balance sheets of the banks that hold the mortgages for most homes.

3. Did you see it coming?

Market turnarounds are not easy to predict, especially if there are no obvious catalysts such as big cuts in interest rates or surges in capital inflows. But close observers of the property market might have been able to connect some dots. First, property prices are, to some extent, driven by GDP growth and Singapore's growth has been improving. At 2.5 per cent in the first half of this year, it should be better than the 2 per cent recorded in 2016. Second, anybody tracking overseas property markets most popular with Singaporean (as well as Chinese) buyers, such as Australia, London and cities on the US east and west coasts, would have noted that these have become less attractive in recent months. So, in relative terms, the Singapore market looks better.

4. Should anyone be worried? Excited, maybe?

There is no cause for worry and it's premature to get excited - the market has not started rising yet. Even when it does, it is unlikely to take off. Remember, we are in a rising interest rate cycle, the property cooling measures are still in place and will probably be tightened if the market starts to hot up. If policymakers have their way (which they usually do), property bubbles in Singapore are a thing of the past. But homeowners can rest assured that the prices of their most prized asset will probably stabilise and may even rise modestly.

5. What happens now?

Your guess is as good as mine. Wait and watch: watch economic growth, watch the take-up rates at property launches, watch the behaviour of foreign property buyers (particularly from China), watch the US Federal Reserve, and watch Sibor.