Loss-making private home resales bear watching as stimulus tapers off

Retrenchments, salary cuts, lower rents are some reasons for homeowners divesting properties at poorer prices

Mon, Nov 30, 2020

NISHA RAMCHANDANI


THE proportion of loss-making residential transactions in the secondary market has eased in recent months after climbing in the second quarter (Q2) of the year, although some analysts say the situation may bear monitoring as policy stimulus and support measures progressively taper off.

Still, the extension to the relief on mortgage repayments beyond the year-end will give a buffer to some property owners in financial distress, analysts pointed out.

According to data from Edmund Tie Research, the share of loss-making resale transactions for both landed and non-landed properties climbed from 16.5 per cent in March to a peak of 21.9 per cent in June this year, before pulling back to settle at 15.9 per cent in October.

Edmund Tie & Company's senior director of research and consulting, Lam Chern Woon, pointed out that transaction volumes were muted from April to June, with the circuit breaker halting physical viewing as Singapore sought to curb the spread of the virus. Mr Lam said: "Despite the lower volumes, we believe that a notably higher share of transactions in those months are probably involuntary in nature."

He added: "The improving figures suggest that the volume of distressed sales may be contained in the near term but the situation needs to be closely monitored as the policy stimulus and support measures would gradually unwind over the course of next year."

ERA Realty's head of research and consultancy Nicholas Mak reckons that the increase in loss-making transactions in Q2 could have been due to various other factors, such as property owners opting to cut their losses owing to the bleak outlook or investors choosing to offload their properties in the face of a softening rental market.

While Mr Mak agrees that the share of loss-making resale transactions is worth monitoring, he is cautiously optimistic that it will remain stable or even come down further next year as long as the pandemic is contained.

"I don't expect to see more distressed sales in the market in 2021 because the containment of the pandemic is gradually becoming a reality with the development of effective vaccines," he said.



Edmund Tie Research estimates that the share of loss-making transactions for private homes in the secondary market stood at 17 per cent for the first 10 months of this year, up from 14.3 per cent for the same period in 2019. This points to a "higher level of stress in the property market this year, owing to the difficulties faced by various segments of the economy," Mr Lam noted, pointing to retrenchments and salary cuts as possible reasons prompting some homeowners to divest their properties at less than favourable prices.

Data from Edmund Tie Research also showed that the share of loss-making transactions during the 2009 financial crisis was markedly higher at 25.8 per cent in H1 2009, although the flood of stimulus helped improve resale profitability with only 11.8 per cent of transactions in H2 2009 proving to be loss-making.

"While demand for the primary segment has been fairly robust, there is some weakness in holding power in the secondary market currently, but ameliorated significantly with the policy intervention," added Mr Lam, who sees a 13-15 per cent loss-making share of transactions as indicative of a healthy market.

According to a recent survey by OCBC which polled some 2,000 working adults in Singapore, nearly one third (31 per cent) had issues paying off their housing loans, while 9 per cent indicicated that they may have to sell or downgrade.

The survey did not ask respondents whether they had applied for the moratorium offered by banks as part of the pandemic relief measures, which allow for home loan repayments to be deferred or reduced.

Some analysts have pointed out that the current crisis differs from the financial crisis in 2009 as the various property cooling measures over the years have cooled speculative activity. Additionally, relief measures rolled out this year to alleviate the impact of the pandemic - such as the moratorium on mortgage repayments - provides home-owners with some leeway.

Mr Mak estimates that subsale transactions as a percentage of total private home sales this year - seen as an indicator of speculative activity - stood at just 0.7 per cent and 0.9 per cent in Q2 and Q3 respectively. In contrast, subsale transactions accounted for 10-13 per cent of total residential transactions in 2009, he added.

Cushman & Wakefield's associate director of research Wong Xian Yang believes the recent extension for relief for those with property loans will give property owners facing financial distress a breather.

Those who are unable to resume making full loan repayments for their residential property loans can apply to their bank to temporarily reduce their loan payments to 60 per cent of monthly installments for up to a nine month period, ending December 2021. This is subject to meeting certain conditions, such as being able to show at least a 25 per cent drop in income.

Mr Wong added: "On a broader level, the unwinding of stimulus and government support would have an impact on the jobs market, which will invariably affect the property market. This needs to be balanced delicately, between unwinding stimulus while supporting the jobs market."

With the global economy in the doldrums, Singapore's gross domestic product is tipped to contract 6-6.5 per cent this year, before growing 4-6 per cent in 2021 on the back of a low base and a gradual recovery.

For now, Mr Wong expects the private property market to do slightly better in 2021, pointing to the gradual uptrend in prices, strong activity at new launches, as well as the low interest rate environment.

However, Mr Wong noted that the absolute number of loss-making transactions appears to have risen in the wake of the circuit breaker - as has been the case for the number of profitable transactions - suggesting a K-shaped recovery could be on the cards. "We could continue to see robust market activities, while also seeing higher absolute volumes of loss-making sales," he said.