Is the Private Residential Property Market near the Bottom?

Should I buy now or should I wait?

I guess this question is on almost every Singaporean's mind. I get asked by quite a number of people: aspiring home owners, upgraders and investors. Afterall, everyone wants to buy at the lowest price.

However estimating the bottom of the market requires a very big crystal ball. Unfortunately I do not have a big crystal ball now. Unless someone wants to sponsor me a Swarovski crystal ball.

I do have a small soccer ball. A mini 2010 World Cup soccer ball - a gift from my previous company.

I shall put my head on the chopping board and attempt to guess the bottom of the market.

Let's take a look at the chart below. It shows the price index of the Singapore Private Residential Property Market. The green years are the peak in the property market and the red years are the bottom of the property market.

It appears there is a certain trend in the market. The property cycle seems to be five to six years. A property cycle is defined as either peak to peak or bottom to bottom.

Some will argue that it is only four years from 1996 to 2000 and eight years from 2000 to 2008. We must remember that the sentiments in the property market was badly shaken by the dotcom bust in 2000/2001, 911 terrorist attacks in 2002 and SARS in 2003. That led to the rise in property prices coming to a halt and staying dormant till 2004.

But nevertheless from 1996 to 2013, in a short span of 18 years, we witnessed three property cycles each averaging around six years.

If we look at the bottom of the market, it shows a time gap of between five and six years between cycles. Again, counting the time span between 2009 and 1998 which is 12 years, it is again around six years for each property cycle.

So if the past trends were to hold true, we are not at the bottom of the market yet. If anything, the earliest the market will bottom out is probably end of 2014. But a more likely scenario will be 2015.

Source: URA / Real Property Advisory Singapore

There you have it. 2015 will be the bottom. Do your homework and assess your purchasing power before you commit to a property buy.

But please don't come after me if it did not materialise. Afterall I used a soccer ball instead of a crystal ball to peek into the future.

Will the Buyers Return in Force for Lakeville?

Tough days are coming and developers know it. No longer are the days where you can achieve sales of more than 50% during the launch. The Santorini for one, sold only 40% or 80 units of the 200 units launched for sale.

Analysts blamed the Total Debt Servicing Ratio (TDSR) for the quieter market. But I would say most of the demand has been soaked up. The TDSR helped to arrest price increases and return some sanity to the market.

More effort and even greater product differentiation is needed to move units. An article by Business Times on Tuesday (see below) highlighted that developers are spending or doing more marketing to sell their projects. Some examples are listed below.

• Seminars
• Multiple estate agencies

I have seen more TV ads placed by one of the largest developers in Singapore. Another foreign developer even invited the public to name their executive condominium project - not one but two.

All eyes are on Lakeville now which is expected to be launched soon. The developer said the average selling price is between $1,250 to $1,350 psf on balloting day. If sales disappoint, the negativity will hit the market and perhaps trigger even lower prices for other projects yet to be launched.

New Resale Rules Do Not Change the Resale Market at All!

The Ministry of National Development (MND) announced a new set of procedures for the HDB resale market on 10 March 2014. See below.

But does it change the resale market at all?

My stand is no.

HDB is merely shifting the valuation report to a later stage and perhaps avoid the situation of sellers requesting for a new valuation report (some sellers are unable to sell their flats for more than three months despite offering to go below valuation). However buyers and sellers can still call any HDB appointed valuer and request for an indicative valuation (with no liability on the valuer). But at the end of the day, the valuer might not be the one who carries out the valuation. Seasoned real estate salespersons can also advise buyers and sellers on the value. It really depends on whether buyers and sellers want to use the published HDB prices, the indicative valuation or real estate salesperson's advice since either value is not confirmed/endorsed by HDB.

This practice of requesting for a valuation report after an option has been granted in the private property market has in most instances seen valuers matching the agreed price. If the same situation is to happen in the resale market where valuers match the agreed price, it serves to stop the slide in HDB resale prices. 

Another reason why HDB is changing the whole procedures is probably because it is taking longer than three months for some HDB flats to be sold. Valuation reports are only valid for three months and sellers have to request for another valuation report.

Source: MND

Are Private Property Prices Really Falling This Time?

The URA Private Property Price Index (PPI) registered a decline in the last quarter of 2013. Analysts are saying again that prices are starting to ease. They said that in 2012 Q1 when the PPI eased 0.1%. But the PPI rose in 2012 Q2, confounding many.

So is the fall in PPI for real this time?

My take is YES.

Let's take a look at the table below. In 2008 Q3, flash estimates showed a 1.8% decline in PPI. This accelerated to -2.4% when the actual figures were released one month later. This increased expectations that prices will fall further which was proven in 2008 Q4.

In 2012 Q1, the flash estimates and actual figures were the same. What happened in 2012 Q2? The PPI rose instead of falling further.

This time in 2013 Q4, the actual PPI fell more than the flash estimates. This has raised expectations that prices will continue to ease in 2014 which I also believe so.

Period	Flash Estimate	Actual
2008 Q3	-1.8%	-2.4%
2008 Q4	-5.7%	-6.1%
2012 Q1	-0.1%	-0.1%
2012 Q2	0.4%	0.4%
2013 Q4	-0.8%	-0.9%

Source: URA, Real Property Advisory

The key point to note is if the actual figures were higher/lower than flash estimates, the chances of the PPI continuing in the same direction is higher. ie. if the actual figure is lower than flash estimates, the next quarter is likely to be lower.

In 2014 Q1, we have already seen property launches at prices equal or even lower than comparable projects in the same area. Even land bids for executive condominium sites are tempered. This means that developers are managing their costs in case property prices fall further.

Whatever it is, we will know how property prices fare in two months time.

Sustainable BTO Flat Supply? Really, HDB?

I wonder if anyone is celebrating or cursing after reading that HDB will scale back its Built-to-Order (BTO) flats in 2014.

I hate to spoil the party for those celebrating but the headline by HDB is misleading.

HDB is scaling back by only a mere 3% or 800 less BTO flats from 2013 (read point 4). But they are reducing the number of 3- to 5-room BTO flats by 18% or 4,000 units and increasing the number of studio and 2-room BTO flats. The supply of 2-room BTO flats will almost double from 2,600 in 2013 to 5,000 in 2014.

Source: HDB

What is the likely impact?

1) HDB resale flat prices have fallen especially the bigger flats. Cash-over-valuation (COV) has been declining with more resale HDB flats sold at or below valuation. This applies especially to buyers of Executive Condominium (EC) units as they are required to dispose off their HDB flat. If HDB does nothing to arrest the fall, it can be a potential political time bomb for the next General Election in 2016. By pushing some of these demand back to the HDB resale market, it might arrest the slide.

2) There is still a sizeable number of singles in their 40s and 50s who want a place of their own. Since they do not own any flat at the moment, price movements in the HDB resale market will not affect them. Giving them this chance to own a HDB BTO flat might work in the favour of the Government.

3) HDB could be looking at opening up the 2-room BTO flats to divorcees with child(ren) in the later part of 2014. Hence there is a need to increase the supply.

4) Construction costs are going to stay elevated. With the Government cutting down on foreign workers, the huge number of homes to be constructed and MRT lines in the pipeline, resources are getting stretched. Even if a recession comes, construction prices will not come down immediately.

So I would say it is not a sustainable BTO flat supply. It is just the HDB trying to balance the HDB resale market.


Note:
HDB BTO flats is a form of wealth distribution by the State. The HDB market is divided into two segments: current owners and would-be owners. Current owners want prices to stay elevated. Would-be owners want prices to come down. It is difficult to satisfy both at the same time. Now that the HDB has satisfied the would-be owners, it is time to take care of current owners.

I did not comment on the impact on the private property market because the buyers (coming from the HDB market) would have already secured a loan. I would speculate half will rent out their HDB flats to pay for the private condominium monthly loan installments and the other half will stay in their HDB flats and rent out the studio or 2-bedder condominium/apartment unit to cover the monthly loan installments.

How Will the HDB Categorise DBSS Flats in the Resale Market?

The Design, Build and Sell Scheme (DBSS) was a concept introduced by the Housing and Development Board (HDB) in 2005. According to the HDB, the DBSS was introduced to the public housing market to offer greater choice and wider variety to meet the housing aspirations of higher income flat buyers for better design and finishes. Flats sold under the DBSS come with a 99-year lease and will be offered to buyers under similar HDB eligibility conditions like flats developed by the HDB. 

My stand from the day the HDB launched the concept of DBSS is that it is not worth buying simply because they are still HDB flats at the end of the day and they are priced much higher than any HDB flat in the same area.

The counter argument is that it is designed by a developer that builds private housing and it comes with supposedly "premium" finishes and design. Some DBSS projects even come with planter boxes, a concept found in condominiums. But please bear in mind that every unit in the DBSS project has the same design and finishes which is no different from a HDB premium flat unless the buyer re-designs the interior of the DBSS flat.

Will the HDB categorise a resale DBSS flat differently from a "normal" resale HDB flat then?

My answer is no. On a valuation basis and all things being equal, a 4-room resale DBSS flat will be valued on a similar basis as a 4-room resale HDB flat perhaps adjusting a bit for minor differences like the planter box or finishes or age or location. The HDB is not likely to create a separate category in their resale flat transactions search (http://services2.hdb.gov.sg/webapp/BB33RTIS/BB33PReslTrans.jsp) to identify a DBSS flat from a resale HDB flat. A DBSS flat is still a public flat afterall. 

But if the HDB does creates a separate category, it may go down the path for HUDC flats, with a possibility of privatising in the future. That will be an icing on the cake for such "premium" HDB flats should it happens. Buyers can pop the champagne when it happens (many years down the road).

The Premiere @ Tampines will be the litmus test being the first DBSS project to reach the minimum occupation period (MOP) end 2013.

Project Name	Location	Estimated Price Range at Launch	Estimated TOP Date	Estimated MOP Date
Pasir Ris One	Pasir Ris Central / Pasir Ris Drive 1	$389,000 to $760,000 ($556 to $672 psf)	May 2015	May 2020
Trivelis	Clementi Avenue 4	$375,000 to $770,000 ($580 to $728 psf)	March 2015	March 2020
Parkland Residences	Upper Serangoon Road	$359,000 to $738,000 ($498 to $612 psf)	February 2015	February 2020
Lake Vista @ Yuan Ching	Yuan Ching Road	$360,500 to $680,400 ($500 to $585 psf)	January 2015	January 2020
Belvia	Bedok Reservoir Crescent	$395,000 to $670,000 ($549 to $593 psf)	November 2014	November 2019
Centrale 8 @ Tampines	Tampines Avenue 5 / Tampines Central 8	$389,000 to $778,000 ($592 to $667 psf)	October 2014	October 2019
Adora Green	Yishun Avenue 11 / Yishun Central	$310,000 to $650,000 ($430 to $541 psf)	August 2014	August 2019
The Peak @ Toa Payoh	Lorong 1A Toa Payoh	$355,000 to $722,000 ($471 to $573 psf)	August 2012	August 2017
Parc Lumiere @ Simei	Simei Road	$378,000 to $575,000 ($374 to $482 psf)	May 2012	May 2017
Natura Loft @ Bishan	Bishan Street 24	$490,000 to $739,000 ($479 to $572 psf)	September 2011	September 2016
Park Central @ AMK	Ang Mo Kio Street 52	$433,000 to $689,000 ($447 to $534 psf)	August 2011	August 2016
City View @ Boon Keng	Boon Keng Road	$349,000 to $727,000 ($477 to $568 psf)	January 2011	January 2016
The Premiere @ Tampines	Tampines Avenue 6	$138,000 to $450,000 ($256 to $367 psf)	December 2008	December 2013

Source: Real Property Advisory Singapore