Over the years, the residential sales market in Singapore has witnessed a rapid change in tandem, along with the broader residential market cycle. It typically registers stronger activity during upturns while moderating itself at downturns. Since its glory days back in 2005 to 2007, the Singapore En Bloc market has not been able to match up to its previous levels. At its height, in 2007, it experienced more than $12 billion worth of sales, which got stagnated due to the recent economic crisis in 2008-09.
However, the recent En Bloc frenzy in 2017 has caught everyone by surprise. A total of 18 residential projects has been sold till date, bringing in revenue worth $6.34 billion, the highest figure in the last 10 years. This will also result in an additional 9300 new homes being injected into the market, as per the statistics provided by the Urban Development Authority (URA).
Let’s discuss the broader implications it might have in the next two years and beyond.
The government has already tried to strike a reassuring note, claiming prices may not necessarily elevate in 2018 and 2019, as developers are still subject to demand and supply forces working in the market.
To simply put it, the fundamentals of the residential market remain unchanged. Both the demand and supply measures have been regulated for a more stable and sustainable market. The Singapore property market has just begun its stabilizing effect. However, the more important questions remain. Is this upturn just another blip, or is there light at the end of the tunnel? If, indeed it leads to another bull run, how will the government react when the property prices start deviating from the fundamentals?
The market looks to have passed a conjugation point, and is looking good to continue on a more sustainable path. The collective sales boom of 2017, looks to be the main decisive factor behind this. 2018 and 2019 are already looking to be extremely interesting calendars for both individual buyers, developers and investors.
Impact
The renewed interest regarding the En Bloc market is encouraging more owners to transfer their housing units from the resale market to join the collective sales bandwagon. This has created a shortage in the resale market- which can be considered as a turnaround from the situation last year, when there was an overburden of such properties. The current lack of supply will fuel the demand and prop the market up further.
Last year, the developers were running short of units for sale. Market analysis stated that the overall market remained in the oversold mode for 3 consecutive months, when the ratio of units sold exceeded the units launched by developers by more than 100 percent. That ratio even reached an all-time high of 225%, indicating that developers were selling units faster than they could restore.
The En market is expected to remain sustainable over the period of next 12 to 18 months, with another 10 to 15 potential sites being transacted between this period. Even the rental market is experiencing a stabilizing effect sooner than expected. It has hugely benefited from the En Bloc wave, with more and more displaced tenants looking for alternative arrangements. Both the non-landed segment in the outskirts as well as the landed segment of the island, has experienced a rise in rental indices by almost 0.9% and 0.6%, respectively.
Neighborhoods located around the recent En Bloc sites, are likely to gain most from rental recovery moving forward, in the coming quarters. The landed properties also staged a comeback, as buyers are slowly continuing their recovery in the market. Displaced owners could and should take this opportunity to upgrade to a higher property class, which is often considered as a status symbol.
Buyers tend to find more value in properties with larger floor space, which has led to the fear that prices will eventually rise astronomically, taking these properties beyond their reach. Though the debt servicing ratio framework is still being stabilized, the premiums received by bloc owners will surely make the upgradation easier over time.
Concern
The recent buying momentum in the primary market is not only down due to En Bloc wave, but also because of an increased number of eligible Housing Development Board upgraders. A recent estimate suggested a presence of over 19000 such upgraders in the current year with a further 13000 next year, a marked upgrade over the previous years. All these factors further point towards a sustainable recovery of the property market.
The property, being a hard asset is considered a safe investment choice, further reinforced by the inflation factors and often negative interest rates. Individual investors and buyers, are also expected to take this plunge, seeking value buys after being benefited from the successful En Bloc deals. On the back of brighter economic prospects, these effervescence is expected to continue into the coming two years, with developers becoming more ravenous for lands. They will be expected to participate bullishly in both private and public-sector land tenders for well-placed sites.
The question is, will these be a cause for concern?
The current market sentiments, though improved, truly reflects the cynical nature of the property market. As they say, what goes around, comes around. This has planted a bit of skepticism in the minds of market experts. The new units from the En Bloc sales, once they are completed a couple of years down the lane, will weigh heavily on the market.
The experts expect the market to rectify itself if the domestic economy faces another rough patch, which would make the underlying demand weak again. The buyers and dealers with zero holding power will have to face harsh consequences, when that day arrives.
The current sentiment among the buyers and developers are positive and cheerful over this short term. Though, it remains to be seen, how long will such good days last?
Let’s wait till then…
