THE WORST RECESSION?

Job-saving measures will cushion some of the pain hitting property sector

Government has learnt to manage negative hits to real estate market, say analysts

Mon, May 04, 2020

Siow Li Sen


AS SINGAPORE heads towards its worst recession since its independence, with dire predictions of massive job losses, analysts believe the impact on the property sector will be cushioned by the government's determination to support citizens' livelihoods.

In Q1, private home prices fell 1 per cent while total transactions fell 12.5 per cent. Both figures are expected to worsen for the full year.

Private home prices are expected to fall by 5 to 10 per cent in 2020, and new home sales are expected to fall to just half of the 9,912 units sold in 2019. But consultants said government measures, including job support and mortgage relief measures, will mitigate the pain.

DBS has estimated the total fiscal response at S$68.8 billion or about 13.8 per cent of nominal GDP.

The horrors of a 45 per cent price collapse following the Asian Financial Crisis (AFC) and a 25 per cent dive after the Global Financial Crisis (GFC) are firmly in the past, the consultants added.

Mitigating factors include the brutal fact that foreigners will bear the brunt of layoffs, and that home buyers are not over-leveraged due to nine rounds of cooling measures since 2009.

In Q1, total employment shrank by 19,900, with Manpower Minister Josephine Teo warning that the situation could be worse as the circuit breaker measures have made data collection more challenging.

Economists said foreigners will make up 50 to 60 per cent of the job losses, which may reach 100,000. Maybank Kim Eng economist Chua Hak Bin has a gloomier projection for retrenchments to reach 150,000 to 200,000. More than half of these will be of foreigners, who will not be accounted for in the unemployment rate as they would have to leave the country.

Nevertheless, compared to previous crises, the current housing market is more stable, said Lee Sze Teck, director of research at Huttons Asia. "Speculation (measured by sub-sales) is negligible at 1 per cent," he said.

In Q1 2020, there were 40 sub-sales out of a total of 4,269 transacted units. During the AFC, on the other hand, some were flipping their queue numbers and options to purchase. Speculation accounted for a quarter of transactions in 1996. During the GFC in 2008, sub-sales accounted for 13 per cent of transactions.

"Furthermore, the loan-to-value ratio is at 75 per cent for the first property loan and 45 per cent for the second property loan," said Mr Lee, adding that the total debt servicing ratio framework (TDSR) has further limited loan amounts. "This means that households are not exposed to high leverage."

The TSDSR sets limits on how much property buyers can borrow based on their monthly incomes. Borrowers' monthly repayment for all debts - mortgages, credit card bills, car loans and personal loans - cannot exceed 60 per cent of their monthly income.

Christine Li, Cushman & Wakefield's head of research in Singapore and South-east Asia, also pointed out that developer balance sheets are mostly healthy. Most do not face any pressure to cut prices significantly in 2020 and 2021.

If the unemployment situation does not improve once loan deferment ends, however, there will be distressed home-owners struggling to pay their mortgages and be forced to sell, said Ms Li.

At that point, it is likely that supportive measures would be implemented to support property prices if necessary, she added.

According to a BT article published on April 20, more than 17,000 people have applied to defer their mortgage repayments.

The government has learnt from the previous crises in managing negative hits to the property market, Ms Li said.

"Given the past lessons learnt, I believe the Singapore government is a lot more nimble now because the fallout in the property market could severely impact the livelihood of Singaporeans," she said.

Locals now make up a higher percentage of home buyers. Singaporeans made up 63 per cent of non-landed property sales in 2007. This increased to 78 per cent in 2019. "(A) majority of these purchases are owner-occupied or for long-term investment," said Ms Li.

To support the property sector, Mr Lee of Huttons said the government should consider allowing developers to extend their project completion periods and lifting some cooling measures. In addition, it could also suspend government land sales to ease the supply situation.

Meanwhile, in the non-private residential segment of the property market, sentiment was poor even before Covid-19 as uncertainties arising from the unresolved China-US trade war weighed on business activity.

Data from the Accounting and Corporate Regulatory Authority showed that in Q1, 239 companies went into liquidation. For the whole of last year, 287 went belly-up - the highest number since 2005.

According to Bizinsights.net, an authorised information service provider of Acra, 19,000 businesses and companies closed shop in Q1. This represented a jump of 78 per cent from the same period last year. The list includes retailers, food and beverage companies, and transport and consultancy firms.

Maybank's Mr Chua said it would not be surprising if the number of business failures quadruples in the coming months.

Weak business sentiment has weighed on the office property space. Official data showed that the islandwide office vacancy rate rose to 11 per cent at end-Q1 2020, from 10.5 per cent at end-Q4 2019. The vacancy rate for industrial space was flat at 10.8 per cent. For retail, it increased to 8 per cent in Q1 from 7.5 in the previous quarter.

Savills Singapore executive director Alan Cheong has predicted that the average monthly rental value for the property consulting group's Grade A CBD office rental basket will fall by 10 per cent for the whole of 2020.

How much will Singapore's property prices fall in 2020? And should investors jump in as prices fall, in expectation of a rebound as cooling measures are eased?

International Property Advisor's chief executive Ku Swee Yong said there are too many unknowns for now, with the biggest being future manpower policy.

Expats working for banks may find it difficult to renew their employment passes as layoffs mount, and this in turn will lead to reduced demand for rental homes. Those who lose their jobs or suffer pay cuts may sell to downsize, or move in with family members, leading to more homes being offered for sale.

Banks will become more conservative in home loan valuations, further pressuring prices.

Another unknown could be the introduction of new social distancing policies related to the number of people allowed in offices and restaurants, said Mr Ku.

The situation is "dicey as the picture is too murky because of the unknowns", he said.