Where Is The Market Heading?
There has been quite a bit of confusion on where the property market is moving after the Government implemented the cooling measures in July last year. Some people firmly believe that a market correction is impending because prices are too high with an abundant supply in the pipeline. On the other hand, there are the analysts at Morgan Stanley who says curbs won’t cool property prices. So how do we know who is right and who is wrong? Is there a way to monitor the current data to understand where the direction of the market is going? Well, that’s the purpose of coming up with this monthly sales update. Now before I explain why I use this the following data, let’s go back to the basics of what affect prices. So you can judge for yourself where the direction of the market is heading.
Myths On What Affect Prices
First of all, prices do not go down because they are too high. Nor do they go up because they are “low”. This famous saying may sound like common sense but is a derivation of Newton’s third law. A phenomenon that seen when you throw a ball in the air. However, if you launch a rocket and it is fast enough to reach escape velocity, it never comes down ever again. So it is essential to understand that property prices(and prices of everything else) are not affected by Newtonian physics. The laws of supply and demand influence them.
Hence, to be able to forecast where the market is heading, all you need to do is to understand the factors which affect the supply and demand of real estate. Sounds simple enough? Let’s take a more in-depth look.
Factors That Affect Supply
- Government Land Sales.
Every year, URA(sometimes HDB) will designate land sales under two categories. One is a confirmed list where land sales will be put up for tender. The other is a reserve list where the land will only be put up for bid after a developer has written in to trigger interest. For real estate, it is a product that takes time to build and complete. And as such, supply is always planned and in excess. There is no way to increase inventory by a snap of your fingers instantly.
- Enbloc Sales
Although enbloc sales increase the supply of units in the market, it can also act as a source of demand. After all, these collective sale owners need to find another place to stay. Interestingly enough, if these enbloc buyers take their sales proceeds, leverage and purchase two units in the market. There is a possibility that this increase in demand together with keen market interest outstrips the current supply in the market. I believed that was what happened ten years ago in 2009 and perhaps the main reason for the latest and harshest measures dished out in July 2018. I think this is more of a demand rather than a supply factor.
- Market Collapse
Supply takes shape in many forms. In addition to government land sales, enbloc market, it can come from the secondary or resale market. In market crashes, there is a sudden release of units in the resale market because people cannot afford to pay their mortgages. Reasons can range from speculative behaviour, negative rental returns or loss of income due to the non-performing economy. In essence, caused by a large number of people who entered the property market without any sufficient holding power.
Factors That Affect Demand
If it is affordable, people will buy it. Have the median incomes of Singaporeans risen over these last ten years? Or the median incomes of foreigners that buy Singapore properties from Malaysia, Indonesia or China?
- Population Growth
A somewhat sensitive topic but if the population is expected to grow to support a sizable internal market and cater to the ageing population, you will need more housing. Hence, more demand either by immigration or natural means.
- Interest Rates Versus Inflation
When bank interest rates are lower than that of inflation rates, it means that money is getting smaller every day. Instead of storing it in the bank, some investors might take the funds and place it into another vehicle like property where you leverage and get higher returns. Similar to what happened in the property boom in 2010.
- Market Sentiment
In 2003, there was the SARS epidemic. Total condo sales volume for that entire year was 7528. You can safely assume that this is the primary level of condo consumption per year. Compared this with the 33,354 condo units sold in 2012, where market sentiment was the highest. New launches also stimulate market sentiment. Have you heard of the stories where a Vietnamese rice trader who bought an entire stack in a condo development? Or the uncle who cycled pass a showflat and bought two units on the spot?
- Government Regulations/Cooling Measures
The cooling measure is an external intervention by the Singapore government to reduce the demand on the current property market. It is not a market force per se but rather an artificial means to damper demand by imposing specific financial penalties and loan restrictions. Can you imagine what happens to the property market tomorrow with the measures suddenly removed?
Ok. Then what’s next?
Well, now that you have a clearer idea of what affects prices, you are in a better position to understand where the market is heading. In terms of supply, you can always check the upcoming land sales from URA, enbloc, etc. As for demand, my partners and I will be updating the top 10 best selling projects monthly. As long as there is volume, prices will maintain and even appreciate. For most of the individual projects, we have also added in a balance unit chart. So from there, you would be able to understand which unit types are in demand as well.
Top 10 Selling Condos For March 2019
- Treasure at Tampines sells 289 units at a median price of $1335 psf. Treasure at Tampines takes the top spot because it has both a plentiful supply of 2203 units (which makes it the biggest condo in Singapore) and the fact that March 2019 was the month of the initial sales launch.
- The Tre Ver took 2nd place by selling 131 units at a median price of $1602 psf. The sales are a bit of a surprise considering that the Tre Ver was launched in August 2018.
- The launch of The Florence Residences saw 77 units sold at a median price of $1434 psf. This increase in marketing activity in the North-east region may also account and trigger sales for the following previously launched projects:
- Parc Botannia with 55 units sold at $1303 psf, Riverfront Residences with 55 units sold at $1334 psf, Affinity At Serangoon with 50 units sold at $1506 psf, The Garden Residences with 29 units sold at $1545 psf.
- For the other city fringe developments, consistent selling Stirling Residences moved 45 units at $1772 psf while Parc Esta sold 36 units at $1711 psf.
- Lastly, the launch of Treasure at Tampines might also trigger sales of the nearby The Tapestry, which saw 30 units sold at $1318 psf.
For March 2019, developers sold 1018 new launch units while the resale market saw 675 units exchanging hands. Add this with 16 subsale units, volume for March 2019 is a total of 1709 units.
Article contributed by Jerry Wong
Jerry Wong is a realtor with Huttons Asia Pte Ltd. He loves coffee, cookies and condos. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home or make that capital upside in just a matter of months. Buy Jerry a coffee, and he will meet up with you on a 1 to 1 session to share the following
- How certain factors affect real estate prices. (Using historical transactions as references)
- Applying lessons from history to determine if a condo has the potential for upside or not. These condos can be those under construction, resale or the very one you are staying in right now.
- Or just prepare the toughest question you have on your mind! If it is interesting enough, the answer will be in a blog post and shared with everyone!
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