2020 is shaping up to be a difficult year, with the wider economic situation mostly unchanged (or perhaps worse) than 2019. In our property outlook 2020, we pick out some of the bigger trends that it’s worth noting:
Key factors that will impact the private property scene in 2020
- A supply glut stemming from 2017’s en-bloc fever
- More interest in the super-lux segment from foreign investors
- Greater risks facing landlords in CCR properties
- A “stay of execution” in interest rate hikes
- More resale flats arriving on the market, along with more buyers
- Lower prospects for collective sales
1. A supply glut stemming from 2017’s en-bloc fever
As we pointed out previously, there’s a supply glut of about 32,000 private homes (excluding Executive Condominiums) in the market. At the current rate of sales, it will take about four years to soak up the supply. This is likely to dominate concerns for the near term.
Much of this stems from the en-bloc fever that started in 2017, when foreign developers – mainly from China – kicked off a buying spree. By around 2018, we had seen 35 collective sales totalling more than $10 billion; the highest since around 2008. This prompted us to warn, in the same year, that we could end up with a lot of unsold private properties – and that’s largely come to pass.
But while this will apply downward pressure on property prices, we don’t foresee any price drops. Developers paid high prices for the land acquired in 2017, and there isn’t much more room for them to offer discounts. As such, we expect private home prices to continue to rise throughout 2020, albeit at a modest pace of two to three per cent. This is roughly in line with what we’ve experienced this year.
2. More interest in the super-lux segment from foreign investors
As the Sino-US trade war heats up, foreign investors will be looking for the proverbial port in a storm. This often translates to good news for super-lux properties, which are units priced $10 million or higher. These reached an 11-year high in September this year, and it’s likely to continue.
This is because Singapore property is often viewed as a safe haven asset, and continues to be a draw to foreign investors. This is particularly true for Chinese investors, who are looking to mitigate the effects of the trade war and the falling value of the yuan. Hong Kong, once the closest rival to Singapore’s property market, is also looking unfavourable right now due to political turmoil.
This isn’t going to move the needle on overall market prices and sales volumes though, as super-lux properties are few and far between.
3. Greater risks facing landlords in CCR properties
Singapore’s GDP growth forecast for 2020 is modest, between 1.5 to 1.9 per cent – but the ongoing trade war between the US and China, Brexit turmoil, and a generally weaker global economy is cause for concern.
This tends to impact high-end properties (not to be confused with super-lux properties) first – think condos in the $3 million range, in the Core Central Region (CCR). Land landlords should be braced for potential vacancies in these areas. That’s because in difficult economic situations, companies often turn conservative: they scale back on the number of expatriates they bring in, and shrink housing allowances.
Tenants may look to downgrade, moving to Rest of Central Region (RCR) or other more affordable, mass-market properties; and we foresee shorter leases (tenants may sign shorter leases during downturns, as this allows them to move to cheaper units should rents fall further).
4. A “stay of execution” in interest rate hikes
Mortgage rates in Singapore are impacted by the interest rates set by America’s central bank (the Federal Reserve), among other factors. At present, bank interest rates are around two per cent per annum for most home loan packages.
Bank loans have been cheaper than HDB loans – which are at 2.6 per cent – for almost a decade now. The reason stems from interest rate cuts in the aftermath of the 2008 Global Financial Crisis. The Fed sought to stabilise the rate, hiking it in increments of 0.25 per cent, following the US economic recovery. However, the ongoing trade war has caused it to reverse cause.
In end 2018 the Fed promised to stop raising rates, and since then we’ve seen three more rate cuts this year, in July, September, and October. The inclination to keep rates low mean that home loans will likely hover close to current levels, barring any major developments in 2020.
5. More resale flats arriving on the market, with more buyers
Some 50,000 resale flats are expected to reach their Minimum Occupancy Period (MOP) between 2020 and 2021. Besides resulting in a potentially huge number of upgraders, this also means a lot of resale flats can be fully rented out.
This is coupled with more generous housing grants – the Enhanced Housing Grant (EHG) in October allows for up to $80,000 in grants, for both BTO and resale flats. In addition, the government has relaxed the rules for using CPF in purchasing older flats; buyers can now use their CPF to buy resale flats, even if there’s only 20 years left on the lease.
All of this is likely to result in more resale flats going on the market, along with a rise in buyers. In particular, we foresees stronger demand for older flats in more mature areas, given that it’s now easier for buyers to afford them.
6. Lower prospects for collective sales
With the large supply glut and challenging economy, we expect that developers will mostly be focused on clearing their inventory, rather than buying more land. This could result in disappointment for those who were hoping for a successful en-bloc this year. This is especially true for larger condos, where developers may be hard pressed to build and sell everything within the five year Additional Buyers Stamp Duty (ABSD) time limit.
Our property outlook for 2020? It’s going to be a rocky year ahead
We’d usually point out that the supply glut, manageable interest rates, and large number of resale flats going on the market are a straight-up win for home buyers. However, we’re hesitant to say that because of wider economic uncertainties. The Monetary Authority of Singapore (MAS) has already warned of potentially weaker wage growth in the coming year; and a lower income can affect your ability to service your home loan, however low the interest rate may be.
It’s an especially tough year for those looking to purchase properties as an investment – as mentioned above, rental units in the CCR have a higher risk of vacancies, and we expect tenants will look for shorter leases. Investors should temper their expectations for the near term, particularly with regard to CCR properties.
How do you think the property market will fare in 2020? Voice your thoughts in our comments section or on our Facebook community page.
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