The Covid-19 outbreak is the Black Swan of the decade. Nothing since the last Global Financial Crisis even comes close to how disruptive it’s been; and in this article, we’ll examine the impact so far.
One common question that I get is how this affects Singapore’s property market. Everyone is wondering if now is the right time to buy, sell, be a landlord, etc. While it’s still too early to give any definite answers, here are some of the key trends and factors that we can see as of Q1:
1. Buyers for new developments are unfazed
The market for new private homes shrugged off Coronavirus fears as of February. New sales volumes rose almost 114 per cent year-on-year (excluding Executive Condominiums). About 975 new units were sold in February, compared to just 455 units at the same time last year. The best-selling condo of February – The M Condo at Middle Road – accounted for 380 units.
February also saw a month-on-month increase of over 57 per cent, from the 620 new units sold in January.
Overall, this was actually the second-strongest February showing since 2012, just before the last property peak.
With regard to ECs, there has only been launch so far this year – that is Parc Canberra, which was actually the second-best selling property in February (324 units). But frankly this won’t surprise anyone, as it’s rare for an EC – let alone the only new EC launch to date – to do well.
All of this defied expectations, as we were expecting a slowdown in volume as fewer people might attend showflats, or more investors adopt a “wait-and-see” approach.
It is inevitable that April and May will see a a plummet (due to the circuit breaker); but it’s evident that there’s still pent-up demand in the property market, outside of the current virus situation.
2. Home loan rates are on a strong downward trend
As one silver lining, the United Stated Federal Reserve has set a target interest rate of zero to 0.25 per cent. This is the lowest we’ve seen since the last Global Financial Crisis in 2008/9.
The rate cut is significant to our property market because many private home loans (not HDB loans) are pegged to the Singapore Interbank Offered Rate (SIBOR). SIBOR movements have a strong correlation to interest rates in the US – when those rates come down, SIBOR will also move down with them.
This means home owners on existing SIBOR packages can find their monthly repayments falling, and new home buyers have a chance to find cheaper financing.
The less interest you pay on your home loan, the better your eventual return when you sell your property. Lower monthly repayments also translate to better rental yield, and overall affordability for home owners.
At the time I’m writing this, the cheapest SIBOR loan package is down to around 1.3 per cent per annum. For comparison, this is half the HDB Concessionary Loan rate of 2.6 per cent.
3. The luxury segment is seeing short term challenges
Last year, the bulk of foreign buyers for luxury properties have come from China.
For example, in the first nine months of 2019, around 315 luxury units were sold in the Core Central Region (CCR). Of these units, about a third (97 units) were bought by Chinese nationals.
For super-lux properties – units priced at $5 million or more – buyers from China drove sales to an 11-year high in 2019. This was borne from a desire to avoid yuan depreciation, and the brief diminishment of Hong Kong as an alternative market (due to political riots at the time).
Now you can probably guess the problem I’m about to highlight:
Due to Covid-19, travel from China has come to a halt. The biggest segment of foreign investors cannot make it here to view properties, attend showflat launches, etc.
Besides the temporary loss of Chinese buyers, we also have to consider that super-lux apartments are more often owned by investors, compared to regular condos. If Covid-19 results in fewer affluent expatriates coming to Singapore, it could raise the risk of vacancies or lower rental income in this segment.
This being said, all this concerns a very small segment of property (how many of us buy $5 million condos?), so it’s not really reflective of the wider real estate market.
Due to the Circuit Breaker, construction and renovation works are currently on hold. While this can cause some delays, it is not the sole cause for concern. We need to remember that, even if we are ready to “re-open” the country and go ahead, we’re still affected by supply issues elsewhere.
For example our, developments typically use prefabricated construction methods. This means the components are assembled off-site, as Prefabricated Pre-finished Volumetric Construction (PPVC) modules.
All of the PPVC module have to be brought in and ready to go, before construction can begin. The work cannot go ahead until all the required components are available.
The problem is, many PPVC modules come from factories in Johor, so Malaysia’s Covid-19 situation can also result in delays to us. In addition, there’s no guarantee manpower issues won’t crop up after this, as developers need to improve the current situation for foreign workers; this is not something that will happen overnight.
On the developer side, they will be worried about meeting the deadline for their Additional Buyers Stamp Duty (ABSD). Developers put down 30 per cent tax based on land price when acquiring the plot – they need to complete and sell all the units in the development within five years, to qualify for a 25 per cent ABSD remission.
(Note: developers getting desperate to meet the ABSD can sometimes result in sharper discounts; but this is not something I would bet on. You tend to end up buying the worst units if you wait till the last minute).
Nonetheless, construction firms are quote innovative in finding ways around these issues, and we’re not yet at a stage where this can be considered a crisis.
Overall, the market seems to have dodged the worst expectations of Covid-19 so far
The scenarios of mass fear, buyers holding back, investors backing way on a wide scale, etc. haven’t come around – in fact sales volumes are up, and show flats are still seeing traffic.
The best way to describe the current market condition would be alert, but not anxious. Home buyers and investors are definitely showing a preference for units with a low overall quantum (even if price per square foot is higher for some of them).
If you’re wondering if now is the right time, drop me a message – I can give you some advice on whether you’re in a good position to buy, and on which properties are the best fit for your portfolio.
Other than that, I hope you and your family are keeping safe. Please stay home, stay secure, and I’ll see you once the outbreak is over!
Ron Chong is a leading property agent with Orange Tee & Tie, and had a previous background in construction and Interior Design. His background gives him a wider breadth of experience in dealing with Singapore properties, and he aims to provide practical, actionable advice to buyers and sellers today. Like him on Facebook for the latest news and updates.