Signs of new vigour in the property market

Lee Su Shyan
Business Editor

Aug 9, 2017

Range of data points to uptick in market, while conditions for recovery may have legs

Comments from CapitaLand's chief executive officer Lim Ming Yan last week that there are signs the private residential market could be bottoming out made market watchers sit up for its positive tone from Singapore's largest property player.

The comments jive with a range of data pointing to an uptick in the market. The latest second-quarter numbers from the Urban Redevelopment Authority (URA) show that prices fell 0.1 per cent, less than the 0.4 per cent in the second quarter. But is the market bottoming out to remain flat, or could Singapore even be embarking on a fresh property cycle?

While no other major developer has been as outspoken recently as Mr Lim, their bids have done the talking for them in two ways.

One is through the bullish bids by developers at the government land sales site tenders. The latest was an aggressive top offer of $446.3 million from a joint venture between Keppel Land and Wing Tai Holdings in Serangoon; 16 players were part of the crowded field. Recently, too, a 99-year leasehold site in Stirling Road went for a record $1 billion to a Chinese consortium in a heated contest featuring 13 bidders.

Another is through the en-bloc market. In contrast to the $1 billion transacted last year, as of this month, the amount already stands at $2.5 billion. This includes smaller developments such as 1 Draycott Park in the prime Orchard Road area as well as the wallet-busting amount of $575 million for former HUDC estate Rio Casa by a consortium led by Oxley Holdings.

Even as the developers are looking more optimistic than a year ago, other indicators are also looking up.

The vacancy rate, which stood a year ago at 8.9 per cent, fell to 8.1 per cent in the first quarter and remained at that level in the second quarter. This indicates that the market is better able to digest some of the completed units coming onstream without the proportion of vacant units rising.

Another aspect of the market which also bears noting is that the number of unsold units continues to fall. At the end of the second quarter, it stood at 15,085 (executive condominiums not included), lower than the 15,930 units as at the end of the first quarter.

At the same time, transaction volumes are also sustained. Previously, while new sales started to edge up, the resale market had remained stuck in the doldrums. But in this second quarter, even the resale market saw a lift with the data showing that resale transactions surged by 70.4 per cent to 3,698 units.

Taken as a whole, the private residential market has now logged a double-digit fall - that of 11.6 per cent - since its peak in the third quarter of 2013. For July, the latest SRX numbers estimate that resale prices of non-landed private homes declined by 0.5 per cent compared with June.


Even as these indicators point to renewed vigour in the property market, observers and market players are hesitant to call this a bottoming out of the cycle, let alone the start of a new cycle.

Despite the positive comments made by CapitaLand's Mr Lim, he did add a qualifier. He noted: "For a rebound to take place on a more sustainable basis, there has to be overall improvements in the fundamentals."

Property giant UOL's deputy group chief executive officer Liam Wee Sin sounded a cautious note at the release of its second quarter results last week: "On the residential front, our concern is a possible 'disconnect' between the recent land tender prices and achievable end-sale prices. Transaction volume in the residential sector has risen steadily but a sustainable recovery in end-sale prices will depend on the dynamics of economy, supply-demand and the rental market."

On some of these counts, the recovery may have legs.

In the rental market, for example, the second quarter has also seen a slowdown in the decline. Rentals fell 0.2 per cent compared with the 0.9 per cent decline in the previous quarter.

On the broader economic front, as Singapore notched up 2.5 per cent growth based on second-quarter advance estimates, there is less concern that Singaporeans are over-extending themselves on the housing front. The last report from the Monetary Authority of Singapore last November noted that household balance sheets continue to be resilient.

Bank of Singapore investment strategist James Cheo notes that property transactions have been picking up, as has the stock market, and these may be areas where households, which have been cutting their debt since 2010, could have put their excess cash. "People are just starting to look to take action," reckons Mr Cheo.

However, even if the market does take off again, its rise is likely to be more gentle as much of the speculative froth in the market has died away after tough property cooling measures were introduced. The demand is coming from owner-occupiers, as one senior banking executive here noted.

Two recent launches of suburban projects saw brisk sales. The Hundred Palms Residences, an executive condominium (EC) in Hougang, sold out on the first day of its launch while Le Quest in Bukit Batok sold out its first phase, also on the first day.

Even though Singapore's population may not be growing as fast as previously, Cushman & Wakefield's Ms Christine Li points to the growth in household formation that could be a more relevant indicator.

In 2015, there were 1.23 million resident households while last year, there were 1.26 million. There was a larger proportion of "couple-based without children" households as well as "one-person" households, which include ever-married people living alone as their grown-up children have moved out.

Ms Li says that "the increased demand could also be attributed to the relatively robust household formation... which has been outpacing population growth since 2013. This trend is expected to persist and will become the primary driver of demand for the residential market".


While domestic factors may be looking robust, there is also the impact of the global economy on the local property market.

Even as the developers have been bullish, it may not be so straightforward an explanation as a wholehearted demonstration of confidence in the market here.

One reason is the supply of completed units is coming down. URA figures show that based on current estimates, the number of completed units will come down from 14,000 (ECs included) this year to around 8,000 units in 2019 and 2020 each.

Associate Professor Sing Tien Foo of NUS' Department of Real Estate says that with this supply pipeline tightening, this could be a reason why developers are now trying to acquire land via government land sales sites or via en-bloc tenders.

Another reason is that foreign markets pose their own challenges.

Take Oxley's moves in the property market here. While they could be described as gung-ho, Oxley has also spread the risk by partnering with other players for its projects here. Overseas, it already has the Royal Wharf project in East London, a sprawling 16-ha development, as well as projects in Cambodia, namely The Bridge and The Peak.

In these circumstances, it is not unreasonable that it would want to balance this exposure with more projects in Singapore.

After all, the Singapore market is transparent and open, and is easy and straightforward to operate in. For developers, who are already in Britain or Australia, Singapore poses minimal political risk, say compared with Britain, which is dealing with the Brexit process amid a weak sterling and question marks over the future of London as a global financial centre.

Meanwhile, it is tough jostling in China to get good sites or in Malaysia, where the local developers are also very active.

Even as other markets may get tougher to crack for the developers, Singapore could be regaining some lustre among foreign buyers.

For example, Hong Kong increased its stamp duty late last year, making it a total of 30 per cent. In Singapore, there is a 15 per cent additional buyers' stamp duty levied on purchases by foreigners here.

Australia too has raised these so-called transaction taxes. In New South Wales, there is a state government stamp duty of 8 per cent and land tax increase of 2 per cent, says CBRE's executive director of international project marketing in Asia-Pacific Darien Bradshaw.

Victoria has also raised its stamp duty for foreign buyers to 7 per cent. There is also a tax where foreigners who leave their properties empty - and not rent them out - would also have to pay the authorities a sum of money.

In Britain, there is now a 3 per cent stamp duty surcharge on the purchase of second properties by foreign investors.

Such hikes in taxes could put Singapore in a relatively more attractive light to buyers.

Globally, liquidity remains strong which will support the property market here. Bloomberg's United States Financial Conditions Index, which gives a gauge of how much liquidity is out there, is standing at around a five-year high.

Assoc Prof Sing points out that for buyers, the risks in the property markets in terms of price volatility are usually seen as half of that in the stock markets. This could be relevant given that US stock markets are hitting fresh records, which means that foreign investors may turn towards property here again.

At the same time, the cost of financing for developers remains relatively low and stable. Assoc Prof Sing points to a gauge of this, the prime lending rate offered by Singapore's banks, which remains stable at 5.28 per cent in the second quarter of this year.

Market observers may say it is too early to pop the champagne but it is probably about time to have it handy.