Reading the signs of a property market recovery

Forecasting property trends can sometimes be like reading tea leaves: What one gets out of it is subjective and up for discussion. While there is no one housing expert that has a crystal ball to paint an accurate picture for the next 2-3 years, examining the vast amount of market information and statistics is enough for an individual to make a pretty good guess. Perhaps the most remarkable aspect of studying the real estate market is its cyclical nature – the inevitability and regularity of patterns occurring over a defined time period. 

Thankfully, the Singapore property market has been relatively predictable over the past quarters. A declining trend (for both property prices and transactions) is the new norm, with many observers still clamouring for the cooling measures to be lifted. In fact, according to the Urban Redevelopment Authority (URA), private home prices dipped by another 0.7 percent quarter-on-quarter in Q1 2016, making it the tenth consecutive quarter for price declines and the longest period of correction in last 15 years.

While all these phenomena are status quo, an interesting point to note is that prices of non-landed private residential properties in the Core Central Region (CCR) buckled the trend to rise by an estimated 0.4 percent. This rate of increase can be considered to be moderate, but it may signal the beginnings of a market recovery.

A deeper understanding of how the market has performed since 2004 reveals some interesting findings. Properties in the CCR typically can be expected to perform ahead of properties in the RCR and OCR during a bull run – and relatively worse when the market turns bearish. More importantly, the CCR tends to be the first to recover from a downturn before the periphery. Specifically, when compared to the RCR and OCR:

• Buying properties in the CCR early in the property cycle typically delivers the best gains. In this sense, they are considered to be ‘better performing’ in the beginning of a market cycle.

• On the other hand, these properties can also be considered to have greater risk and volatility on average. This means that for those who are buying at higher LTVs, CCR properties may offer a more risky prospect than buying in the outer region.

When compared with those outside of the Central Region, the CCR tends be most highly influenced by fluctuating trends, with variations in capital gains/losses tied closely to a rebounding – or correcting, real estate market.

From the graphs, we can see that:

• The CCR experiences rapid growth at the beginning of a property market upturn in contrast to the rest, as denoted in areas A and C. As such, properties which fall under this category tend to have the fastest market appreciation gains during this period of time. In period A alone, properties in the CCR appreciated 43.3 percent versus 33.5 percent and 30.4 per cent in the RCR and OCR respectively. Conversely, they are hit much harder by downturns, as illustrated during the 2008-2009 time period, than the overall market. This is shown in area B.
  

• The market falls in the Central region were also steeper during this time period. This made them a ‘higher risk’ investment when compared to Outer Property. However this risk also accompanies the prospect of higher returns prior of this period – in a classic risk versus return market phenomena. As can be seen in period B, the CCR dropped at a faster rate of 30.6 percent compared to 29.9 percent and 16.9 percent in the RCR and OCR.

• Similarly, properties in the CCR typically appreciates faster after a property market correction than the overall market. Properties in the CCR generally ‘slows down’ before the rest of the market, as indicated in area D. This is indicative that buying these properties late in the market cycle can be expected, on average, to deliver proportionately lower capital growth returns than buying further out.

Furthermore, the graph also illustrates that since mid 2010, capital growth for CCR properties has been very low and almost flat in comparison to the other regions. There are many possible reasons why the ‘flat-lining’ has occurred – and why the growth was curtailed so sharply in mid 2010. Reasons for this can include extraneous economic factors such as:

• The introduction of government cooling measures, thereby shifting demand for cheaper properties away from the CBD region.

• The sluggish global economy – and a general slowdown of demand for CCR properties by foreign investors.

• Preference of developer supply of new projects in the OCR/RCR vs CCR.

• Declining immigration numbers.

In assessing this data, we can therefore see that when it comes to purchasing properties in the CCR, investors need to be cautious and examine property market trends closely to be able to garner high returns to their investments.

We must never forget that market behaviour and corresponding rise or fall in prices in the CCR region is indicative of how property in Singapore is expected to perform. CCR is rebounding and we expect the rest of Singapore’s outer regions to step in and follow suit as prices start climbing steadily.

For property buyers, now is the time to buy and for property sellers, holding out for another four months will ensure you will be reaping in gains that are commensurate to a healthier performing market. With this dichotomy occurring between buyers and sellers, it is safe to say the real estate market is heading back to robust transactional behaviour with both parties affording better negotiating power.