Photo by The Straits Times
By Chong Qi Hui, Head of Research
Date: 24 Oct 2020
3 weeks ago, I have written an article that Singapore residential prices are recession-proof as the overall price index for private residential properties rose by 0.8% in third Quarter 2020 (3Q 2020), despite Singapore facing one of the worst downturn and surge in job losses.
The final data in the third quarter from the Urban Redevelopment Authority of Singapore (URA) on Friday (Oct 23) remains unchanged from URA’s flash estimate released on October 1.
Let us analyse and interpret the data in deeper depth to understand what it means to Singapore residential property market.
1. Landed Property Leads the Price Growth
The landed property market stood out as prices increase by 3.7%, in 3Q 2020, after remaining unchanged in the previous quarter.
As the target group for landed properties is mainly the high net worth individuals, this shows that they are divesting their investment portfolio to lesser risk asset-backed investment, which is real estate.
2. Transaction Volume Does Not Show that Singapore is in a Recession
Transaction volume for new home sales at a high at 3,517 units
Despite Singapore being in a recession, developers launched 3,791 new private homes for sale and sold 3,517 units in 3Q 2020; doubled the volume released (1,852 units) and transacted (1,713 units) in the previous quarter. HDB resale market set the record with resale volume at 7,787 flats, which is the highest in ten years.
While the transaction volume was partly driven by the pent-up demand after the two-month circuit breaker which ended on June 1, the strong revival in new home sales suggested that Singaporeans who forms the majority of the buyers are still in strong financial position and confidence in their job security due to the various government support packages.
Do note that the transaction volume will taper down towards the end of year, which is traditionally the lull period for property market, coupled with recent announcement on new restrictions on developers re-issuing options to purchase (OTP).
However, given that developers managed to sell 7,379 new homes over the past 9 months, which is just slightly below the 7,469 units sold during the same period a year earlier, we will expect that the total transaction volume this year will not be far behind from last year’s 9,912 units, which is against the odds of the crisis narrative.
3. Mass Market Property at Affordable Price Will Move in Today’s Market
389 units out of a total of 566 units (69%) at Penrose have been taken up in 3Q 2020
(Photo: Hong Leong Holdings)
Out of the 3,517 private residential units sold by the developers, 1,850 units (52.6%) were in the Rest of Central Region (RCR) while 1,381 units (39.3%) were in the Outside Central Region (OCR).
This simply suggests that projects sold at affordable prices remain to be the favour of price-sensitive home owners, which also supported my analysis in my previous article that the existing cooling measures such as the Additional Buyer’s Stamp Duty (ABSD) discourages short-term investors who are likely to be speculators but is tolerable for homeowners or long-term investors.
4. Total Supply Remains High and Increasing
There is a total supply of 50,369 uncompleted private residential units (54,473 units if you include ECs) in the pipeline with planning approvals in 3Q 2020 as compared with 49,090 units in the previous quarter.
Given that typically around 8,500 to 10,000 new homes are transacted every year, this suggests that it will take 5 years for the supply to be absorbed. Investors depending on rental income must be prepared to see potentially depressed rentals, longer turnover time and higher vacancy rate.
5. But the Number of Unsold Units is Lowered
There are 26,483 units remained unsold as at the end of 3Q 2020 which is 5.3% lower than the 27,977 units in the previous quarter.
Given that the number of unsold units has been declining over the past 6 consecutive quarters, this may be good news to those waiting for en bloc and we may see some revival in the collective sales market, only if the economy recovers which will spur the property market upturn while the demand for new home sales remains robust next year in 2021.
Be heedful my friends! Analyse and understand deeper behind the data as we are seeing abnormal statistics in Singapore residential property market under the backdrop of crisis and recession this year!
Read URA Real Estate Statistics for 3rd Quarter 2020: