News: Overall prices remain resilient despite contraction in sales volume, analysts

Jun 12, 2020

With developers still not allowed to open sales galleries in the city-state’s first phase of reopening post-circuit breaker period, most analysts expect prices to continue to drop.

Singapore saw sales for new private homes drop 12% during the first quarter of 2020, while new private home prices declined 1%, reported Channel News Asia (CNA).

And with developers still not allowed to open sales galleries in the city-state’s first phase of reopening post-circuit breaker period, most analysts expect prices to continue to drop.

Related story: Someone Bought A $2.2M House Without Even Viewing It, Can You Do It Too?

OrangeTee & Tie Head of Research and Consultancy Christine Sun sees private home prices declining by 3% to 5%, although she expects some segments of the market to perform better than others.

“We are not expecting it to be uniform across the whole industry because it really depends very much on the market segment,” Sun was quoted by CNA as saying.

Mass market projects, for instance, have been shifting up to 70% of their units, she said.

“But if you look at other segments, for instance like the resale market, there could be more price pressure, possibly because many of the individual sellers’ holding power may not be as strong as the developers. Or they may face ongoing competition from the supply of new homes.”

But unlike the 2007-2008 global financial crisis – which was characterised by “panic”, causing property prices in Singapore to fall 25% in three quarters – the present situation is different since the Covid-19 pandemic affected the whole world, said the CNA report citing PropNex Realty CEO Ismail Gafoor.

As such, developers are not slashing prices, while people “are accepting that this is something that needs patience to ride over”, said Ismail.

Another difference between the 2008 financial crisis and the present situation is that interest rates are lower now, which means that it is now cheaper to obtain a housing loan.

The lower interest rate environment has spurred not only the locals but also foreigners to continue shopping for Singapore properties, said analysts.

In fact, ERA closed several deals with Chinese property buyers, whom they gave virtual tours, even during the circuit breaker.

“Because the yuan is depreciating, [Chinese buyers] are actually looking to invest overseas to preserve their wealth … And Singapore naturally being a safe haven and being very well managed and a safe place, attracts these type of buyers,” CNA quoted ERA Real Estate Key Executive Officer Eugene Lim.

Developers have lesser room to cut prices, resale HDBs to remain stable

Even during past crises, developers still had “healthy” profit margins of 20 to 30%, according to Vijay Natarajan, Assistant Vice-President of Real Estate at RHB Securities. But he said that their profit margins will be lower this time around due to the acquisition of expensive land from the recent en bloc frenzy and increasing construction costs in the future.

“This time around, the margins have fallen. There has been quite a bit of competition to acquire land. Because of the recent en bloc cycle, developers are sitting on expensive land banks. Going forward, construction costs are going to rise. This is going to put pressure on the developer margins which are already low at around 5 to 15%, so considering these factors, developers have much less room to cut property prices going forward,” he said.

Meanwhile, experts believe that the HDB resale market will continue to remain stable based on historical data. 

“In the past years, we have seen that even through crisis periods, HDB prices tend to remain relatively stable and if it does come down, it is at a measured pace. Similarly, if it does go up over time, it is also at a measured pace … It’s not affected by the ups and downs of market sentiment, largely because such flats are bought and sold for owner occupation,” said Lim.

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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg

 

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