Private home purchases at odds with headline economic toll

Economists put market buzz down to low interest rates and optimism among those not at risk of layoffs yet

Fri, Oct 02, 2020


THE Covid-19 pandemic has brought about grim news of job retrenchments, wage cuts and a recession - and yet, the property market seems abuzz with activity, with demand for private residential homes on the rise.

Economists The Business Times spoke to attribute this disconnect to reasons such as the low interest rates and the optimism felt by those whose livelihoods remain untouched by the pandemic.

Ong Teck Hui, senior director of research and consultancy at JLL Singapore, said certain sectors in the economy have been badly hit, but there are "bright spots where some businesses are stable or even growing"; he listed the technology, biomedical, healthcare and precision-engineering sectors as examples.

"Those in more stable employment would have greater confidence in purchasing a property despite the recession," he added.

Selena Ling, head of treasury research and strategy at OCBC, said the record-low interest rates and ample market liquidity could have triggered a wave of "opportunistic buying" for those not at risk of layoffs and have sufficient savings, which were waiting to be deployed, perhaps when a correction happens in the property market.

The latest flash estimate released by the Urban Redevelopment Authority (URA) also reflects how the property market has seemingly thumbed its nose at the weak economic outlook.

The flash estimate for the third quarter of this year shows that the overall price index for private homes in Singapore edged up 0.8 per cent over the preceding three months; this comes after a 0.3 per cent increase in Q2 this year.

Leonard Tay, head of research at Knight Frank Singapore, called the figures "gravity defying", and attributed the continued momentum in Q3 to pent-up demand, which has caused "substantial" increases in transaction volumes post-circuit breaker.

Senior economist Chua Hak Bin from Maybank Kim Eng said that, market factors aside, the "generous government monetary support" could also be driving the property market, in that those unaffected by retrenchments or wage cuts see themselves as being "financially better off" and in a better position to upgrade.

"Household savings rates have also been rising as households not impacted by job cuts have cut back spending, in part due to lockdowns," he added.

JLL's Mr Ong noted that "homebuyers' perception" is another factor sustaining demand: these homebuyers believe that prices "may just soften slightly or remain stable at worst, and that it may not be worthwhile to hope for a major price correction".

But homebuyers' optimism runs up against sobering headline numbers. Retrenchments more than doubled to 8,130 in the second quarter from the first quarter - though this is still below the previous peaks of the dot-com bubble and the Global Financial Crisis.

DBS, Singapore's largest bank, said in August that a third of its customers had negative cash flow in the first half of this year, with the amount of money flowing out of their accounts on average exceeding that entering those accounts.

The bank, in its study of a sample of customers who have salaries credited into DBS/POSB accounts, found income deterioration to be most serious in the lower-income group.

Those earning under S$3,000 made up nearly half (49 per cent) of DBS customers who took cuts to their salary. Within this group, about half saw their income fall by more than half.

Vishnu Varathan, head of macroeconomics and FX strategy research at Mizuho Bank, said global liquidity has driven a rapid resurgence in global asset markets. He also noted that the wealthy tend to have more savings, as well as multiple income streams at their disposal.

"Property has tended to be an amplifier of the wealth gap," he said. "The ability to buy at attractive prices, less encumbered by credit or job stability further reinforces the notion of the wealthy being able to hold and acquire properties, even in a downturn."

But whether this points to a widening wealth gap is harder to tell at this point. Mr Varathan said: "While a wider wealth gap and the rise in the number of wealthy may be associated with a resilient and thriving property market, it is too early to draw any conclusions on the impact of Covid-19 on the property market."

Still, DBS Group Research analyst Derek Tan said the recent clampdown by the URA on the re-issuance of the option to purchase could "overshadow the strong sales momentum", especially if property buyers start to be more cautious before placing a booking. He is less optimistic that the property market can sustain its current demand in the long run.

"I just feel that we haven't felt the brunt of the recession as yet, so while we lose the rank-and-file workers for now, we will have to be mindful that if businesses don't turn around over time, the middle managers will be impacted - and these are your condo upgraders."

In another sign of recent market exuberance, real estate agency ERA Singapore sold a 21/2-storey semi-detached house for S$3.4 million in just eight minutes at its first virtual property auction early this week.

Late last month, Hong Leong Holdings sold more than 60 per cent of its Penrose condominium units during the first weekend of its launch. Nearly 85 per cent of buyers of this 99-year leasehold condominium project in Sims Drive were Singaporeans; keen interest came from HDB upgraders from across the island.

The bustling market has also kept property agents on the ground busy.

Lester Chen from Singapore Realtors Inc said that before the Covid-19 pandemic, he ran an average of five viewings a week. Nowadays, he does up to 20, with the majority of these for private residential properties, he said.

Similarly, Kenji Wong from ERA Singapore said he has gone from doing fewer than 10 viewings per month in June to the current 20 a month.

A significant number of viewers are HDB upgraders as well, he said.