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Thread: Repeated warnings on property market exuberance may have muted impact

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    Default Repeated warnings on property market exuberance may have muted impact

    HOCK LOCK SIEW

    Repeated warnings on property market exuberance may have muted impact

    Wed, Dec 06, 2017

    Lynette Khoo


    DESPITE a series of warnings from the government on the risks of excessive exuberance in the property market, it remains to be seen whether market participants will pay heed and exercise prudence - going by the still-bullish land bids tabled since the latest warning.

    The government and developers are not even seeing eye-to-eye about the state of the property market and its attendant risks to stability to begin with.

    Just after the central bank joined National Development Minister Lawrence Wong in urging market participants to act prudently, two collective-sale sites in Bukit Timah were sold the following day at stunning prices to Allgreen Properties, a developer run by property tycoon Robert Kuok.

    The price tag for one of the two sites, Royalville, translates to S$1,960 per sq ft per plot ratio (psf ppr) - breaching a new high for Bukit Timah; on Tuesday, two sites at Jiak Kim Street and Fourth Avenue sold under government land sales (GLS) were also hotly contested, with Frasers Centrepoint setting a new price benchmark for the residential GLS site at Jiak Kim Street at S$1,733 psf ppr.

    The fact that these took place after the third warning from the Monetary Authority of Singapore (MAS) last Thursday shows just how tough it is for the government to drive home its message to market participants.

    But the government has to be seen sending its signals early enough to prevent prices from over-shooting, before developers who have bought land at aggressive prices start testing the market with higher launch prices.

    Citing a potential mismatch between supply of private homes and occupation demand, the MAS flagged in its Financial Stability Review that a looming surge in private housing stock may not be accompanied by an improvement in demand to occupy these homes.

    Developers, however, are reading the market differently. What is more important to them is their ability to sell rather than whether their buyers' homes will eventually be occupied. And in that regard, there are mitigating factors for developers despite the seemingly large supply of units for sale coming onstream.

    Pent-up demand

    Firstly, there is still a lot of pent-up demand to buy homes from among those who had held back their buying decisions after the string of cooling measures. The recovery in transactions this year has pushed developers' sales to 9,460 private homes in the first 10 months, surpassing the 7,972 units sold for the whole of last year. Improved buying sentiment has also been underpinned by stronger economic growth.

    The supply situation also does not seem as dire as what was flagged. The government is projecting that another 20,000 new units on en bloc sites and government land sales sites in the next one to two years will more than double the current inventory, but this may not come to pass.

    This is because the government's projection assumes that the current inventory of some 17,000 units with planning approvals remains unsold. But based on the trailing 12-month sales pace, these units would likely be sold out in about a year and a half.

    It is noteworthy that the inventory as at the third quarter was near the historical low in the preceding quarter, and only 39 per cent of the record level of 44,784 units in the first quarter of 2001.

    Such low inventory reflects developers' depleting landbank and their impetus to grab land. Developers invariably need land to do business. The more gung-ho ones would choose to take a leap of faith in the pricing of their bids. After all, projects such as Park Place Residences in Paya Lebar and Martin Modern in River Valley have launched at prices previously thought unachieveable in those two neighbourhoods.

    For homebuyers, vacancy rates of above eight per cent should look intimidating, even in the context of a record completion of 20,803 private homes last year.

    And given slower population growth, there is "considerable uncertainty" if existing vacancies of over 30,000 homes and the new supply can be fully absorbed by the market, as MAS puts it.

    The central bank has warned that if occupation demand is insufficient for the completed homes, a supply imbalance could result and exert downward pressure on prices and rentals in the medium term.

    Such a market anomaly isn't new. A growing divergence in residential buying fervour and occupation demand was raised in a BT's commentary "Conflicting signals spark property debate" on Oct 20 last year.

    Fear of missing out

    But this divergence may persist, now that the "fear of missing out" among prospective buyers has intensified after the first quarterly uptick in private property prices in the third quarter, which broke a 15-quarter losing streak. That perceived bottoming-out in property prices, coupled with an anticipated rise in interest rates, is prompting some to take action to lock in their interest rates now.

    Such buying behaviour is, of course, detached from the realities of a weak rental market. Those who are buying to rent out may eventually find themselves taking a longer time to find tenants; the alternative for them is to stomach lower rentals.

    But again, it does not necessarily mean that these home-buyers will start defaulting on their loans and go for fire sales. They have holding power. As at the third quarter, there are some S$408.6 billion of currency and deposits on households' balance sheet. These liquid assets, exceeding the total liabilities of S$317.9 billion, provide households with strong financial buffers.

    Near-term vacancy rates could find some relief with fewer completions of private homes next year (some 7,900 units, against about 17,000 units this year), as well as demand for new homes from displaced property owners of en bloc deals.

    On that note, the series of warnings from the government - though necessary - may do little to calibrate the behaviour of developers and homebuyers.

    Most developers support a stable and sustainable market, but there will always be those who need to replenish their landbank urgently or foreign developers with lower returns expectations.

    En bloc property owners are also unlikely to adjust their asking prices downwards, especially if they are already in the process of collecting signatures.

    Thus, it is not surprising to see pockets of bullish bids by some developers in upcoming land tenders still. But with a government determined to stymie runaway prices that are out of sync with the fundamentals, the question is how many warning shots it would take before action is needed.

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    A lot of people in Singapore don't have internet, they don't know what is the price of property in other part of the World.

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