Property market cooling measures have been the recurring and persistent market risk across Asia over the past few months. Singapore is no exception.
Since the introduction of a new set of measures in January, sales volume has slowed and the pace of increase in overall private residential property prices has moderated. The flash estimate of the Urban Redevelopment Authority’s (URA) private residential property price index showed a 2.1-per-cent quarter-on-quarter increase, the sixth consecutive quarter of slower growth rate. The NUS Singapore Residential Property Price Index, which measures prices of completed residential properties, showed a marginal 0.4 per cent month-on-month decline in February.
However, market opinion remains divided over whether the current period of softness in volume and pricing is a sign of a broader downward trend or a temporary respite from runaway prices. Bears would point to the expected surge in completions in 2013 and 2014 and persistent Government intervention as the biggest factors for prices to move south. These risks are worth noting but there are good reasons to believe that this could be a temporary phenomenon.
Firstly, the cycle of wealth creation will continue to fuel interest to buy private residential properties. Wealth is being created by continued economic growth and the good performance of the stock market. In addition, the revival of en bloc sale of residential apartments for redevelopment could inject even more liquidity and wealth into the system. The appeal of owning private properties remains positive, with the overall occupancy rate at 94.8 per cent at the end of last year. According to data from the URA, 8,430 units and 8,116 units are expected to be completed this year and next year respectively. This is low as compared with average completions of 9,622 units per year over the past 10 years. Taken together, it means that the impetus to off-load properties on the cheap is missing.
This is evident based on the average asking price of properties listed for sale. On an island-wide level, the average prices of properties listed on real estate portal propertyguru.com continue to increase on a month-on-month basis (see Table 1). However, bid-ask spreads have widened as buyers have become more resistant to paying higher prices. This is the key contributing reason for the current slowdown in transaction volume. Going further into this year, we believe that the market direction could be determined by the pace of foreign demand.
More foreigners could be looking at Singapore properties as other Asian countries introduce more measures to curb investment demand. The effect of this can be seen from the increase in Chinese buyers for Singapore properties since 2009. China has imposed some of the most severe market cooling measures since 2009 and, over the same period, we have seen an increase in the number of Chinese nationals purchasing Singapore properties. In fact, by last year, they have marginally surpassed Indonesians as the second-largest group of foreign buyers, accounting for 17 per cent of properties bought by foreigners (see Table 2). It is conceivable that, as other countries introduce more restrictions within their home markets, Singapore real estate would look more attractive for long-term investment.
Secondly, the growth of the non-resident population will be the key driver that sustains the rental market. While the Government has tightened the immigration policy over the past year, we think that this could be relaxed in the second half of this year as job vacancies continue to build up. The number of vacancies reached 41,000 jobs at the end of last year, surpassing the average quarterly job vacancy of 35,100 jobs in 2008, according to data from the Ministry of Manpower (see Table 3).
The resident unemployment rate is at 3.1 per cent, which is at its lowest level since 2Q2008. The increased job vacancy and tight employment market will inevitably push up wages. Thus, my opinion is that Singapore would need more foreigners to maintain its cost competitiveness. I believe the Government might need to look into this aspect in the second half of this year.
With that said, the concurrent inflow of foreign purchasers and job-seekers could keep current property prices range bound for some time. This might make for unhappy reading for many buyers waiting on the sidelines. We must remember that buying a property is a long-term game. In any market condition, when buyers stretch their last dollar to buy their “dream home”, the risks are amplified when events do not pan out as expected. Thus, it would be wise to dream smaller and assess risks more prudently at this moment.