En bloc fever benefits only a few

Oct 07, 2017

Cai Haoxiang

1. What do you think was the most significant thing that happened this week?

The world of high finance and big money can often feel disconnected to what is happening on the ground.

En bloc fever reached another height this week, but HDB and unemployment data tell a different story.

There is a barrage of positive data, for now. City Developments has bid a record S$906.7 million for the 200-unit freehold Katong condominium Amber Park. Owners of standard apartments get S$4.3 million each.

Analysts are expecting the development, acquired for S$1,515 per square foot per plot ratio (psf ppr), to break even at S$2,200 psf and sell for S$2,600 to S$2,700 psf.

There are now 15 successful collective sales this year with total transaction value crossing the S$5 billion mark.

Meanwhile, third-quarter flash estimates show the Urban Redevelopment Authority (URA) private home price index rising 0.5 per cent over the previous quarter, the first increase after a 11.6 per cent fall over 15 quarters.

2. Did you see this coming? Why is this a big deal?

The world has experienced a remarkable recovery in business sentiment this year, driven partly by the tech and electronics boom, and by the revival of animal spirits. The Singapore property market has also perked up, with developers hungry to accumulate landbank for future use.

It is uncertain how long the window of opportunity will last. And so many are jumping on the bandwagon.

3. Should anyone be worried? Excited, maybe?

Property speculators or private property owners have every reason to be excited. The property market hasn't been like this for a long time. Yet we should avoid extrapolating too much from an asset price boom which only benefits a tiny segment of the population.

Economy watchers will still be worried. After all, HDB resale prices are falling still, with third-quarter flash estimates for the resale price index down 0.6 per cent to 132.9 points from the previous quarter.

With 80 per cent of Singapore resident households living in HDB flats as of 2016, the HDB market carries significant weight in politics.

The pace of increase from 2007 (75.8 points in Q1) to 2013 (148.6 points in Q1) had arguably been too fast, so continued cooling is welcome. But if prices continue to drop, that is not a good sign of the strength of the underlying economy.

The resident unemployment rate, at an estimated 3.1 per cent in June, is still higher than what it was from 2011 to 2016.

4. What happens now?

There are lies, damned lies, statistics, and statistics that help you stay grounded.

The number of condo-living households have been on the rise. But they are still a minority, comprising about one in seven, or 14.4 per cent, of households here, according to the government's Key Household Income Trends, 2016 report out this year.

As vacancy rates are still elevated versus 2013 and 2014, it might very well be that the market is bottoming, but it is definitely not in the pink of health.

Augustine Tan, president of the Real Estate Developers' Association of Singapore, said this week that en bloc fever might not be sustainable as cooling measures are still in place, while Singapore's population faces slow growth and the economy is grappling with foreign manpower curbs.

The current en bloc fever is not reflective of a reality lived by the majority of Singaporeans.

Riches will accrue to only a few. Assuming the S$5 billion of deals transacted this year result in S$2 million distributed to 2,500 households each, the bonanza is enjoyed by only a percentage or two out of the roughly 180,000 condo-living households in Singapore.

Chew, or stew, on that.