Softer market ahead will make it a challenge for developers, sellers and agents. Genuine buyers will rejoice.
Quick recap of 2013 – private property market
2013 had seen various cooling measures implemented in Singapore’s property market including revised Additional Buyer’s Stamp Duty (ABSD) rate and tighter loan-to-value (LTV) ratio in the private property market.
The new ABSD regime and LTV ratio took effect on 12 January 2013 to curb rising property prices in the LionCity.
The influx of hot money flowing in to the city had resulted in record highs in both the private property (PPI) and HDB resale price index (RPI).
So much so that million dollar HDB flats, had become the ‘new normal’ in the public housing market.
In the private market, foreigners were seen snapping up luxury homes on Sentosa Cove despite the earlier ABSD regulations.
To further stem excessive speculation and prevent a property bubble from forming, the government further tightened the property market.
For instance, Singaporeans buying their second, third and subsequent properties will have to pay a 7 and 10 per cent ABSD respectively.
Meanwhile, PRs buying their first, second, third and subsequent properties will have to pay a 5, 10 and 10 per cent ABSD respectively.
Foreigners saw a 5 per cent increase to 15 per cent across the board for their first, second, third and subsequent properties.
The LTV ratio for individuals who are obtaining a second housing loan was lowered to 50 per cent or 30 per cent if the loan tenure exceeds 30 years or the loan period extends beyond the borrower’s retirement age of 65.
Meanwhile, for individuals obtaining third or subsequent housing loans, the LTV limits were lowered to 40 per cent or 20 per cent if the loan tenure exceeds 30 years or the loan period extends beyond the borrower’s retirement age of 65.
For companies, the current LTV limit of 40 per cent has been lowered to 20 per cent.
The minimum cash down payment required for individual borrowers who have one or more outstanding housing loans and are obtaining second or subsequent housing loans was raised from 10 to 25 per cent.
New TDSR framework and incoming supply led to further softening
More government land sales (GLS) programmes were also announced in 2013 which can yield up to 28,200 private residential units, including 6,400 executive condominium (EC) units.
This is in itself a cooling measure as more supply coming on stream will lead to a price correction.
Collectively, the new ABSD rates and Total Debt Servicing Ratio (TDSR) implemented in July this year have had a significant impact on the private property market.
According to figures from the Urban Redevelopment Authority (URA), prices of private residential properties increased by 0.4 per cent in the third quarter of 2013.
This is lower than the 1.0 per cent increase recorded in the second quarter.
Condominium prices in prime areas continued their downward trend, declining by 0.3 per cent in the third quarter after the 0.2 per cent decrease in the previous quarter.
More significantly, those in the Rest of Central Region (RCR) saw prices decreasing by 0.9 per cent – the first decrease recorded in the region since the first quarter 2012.
The mass market segment, defined as those located in the Outside Central Region (OCR), however, saw prices increasing by 2.2 per cent.
This was expected as they are affordable and driven by genuine home owners.
The increase, however, is still lower than the 3.8 per cent increase in the previous quarter.
In the primary market, buying activity was somewhat subdued as the new TDSR framework caused buyers to exercise financial prudence.
In view of this, developers were forced to price their projects more realistically.
Projects that did well are those located in the RCR such as DUO, Alex Residences and The Creek @ Bukit Timah.
According to CBRE, sales for November registered 1,228 units, bringing the total number of new home sales at 14,678 units for the 11 months of 2013.
The whole year’s new home sales are estimated to be around 15,000 units.
In the HDB market, the Monetary Authority of Singapore (MAS) capped the Mortgage Servicing Ratio (MSR) for housing loans granted by banks at 30 per cent of a borrower’s gross monthly income.
For loans granted by HDB, the cap on the MSR was lowered from 40 per cent to 35 per cent.
Additional restrictions were also imposed on PRs as the HDB sought to tighten loopholes that Singaporeans had raised.
For example, PRs who own a HDB flat were disallowed from subletting their whole flat.
In addition, they must sell their flat within six months after purchasing a private residential property in Singapore.
Notable events in the market include the government finally recognising single’s contribution to the economy and their housing woes.
In July 2013, singles were finally allowed to buy flats direct from the HDB, marking a significant shift in the government’s policy.
Previously, singles above 35-years-old, can only buy HDB flats from the resale market which would normally cost higher due to higher resale flats’ valuation and COV.
With this relaxation of rules, singles earning less that $5,000 can now buy Built-to-Order (BTO) flats but only two-room units.
Low-income singles and those who cannot afford resale flats will benefit from the move.
The government had also ramped up supply of around 26,000 new BTO flats on average since 2013.
This, together with other cooling measures, had resulted in the HDB RPI to fall by 0.9 per cent from 206.6 points in the second quarter of 2013 to 204.8 points in the third quarter.
This is quite significant as it is the first time the index had fallen since the first quarter of 2009.
With the softening in the HDB market, resale flats with little or zero cash-over-valuation are now the norm.
Prediction for 2014 – private property market
The private property market will soften further making it a challenging time for developers, agents and sellers.
The market will be primarily driven by genuine home buyers or ultra high net worth investors who are cash rich and do not mind paying for the ABSD.
Most of the buying activity for new launches will be located in the RCR.
Developers are also likely to offer incentives and vouchers to entice buyers in view of the softening market.
Luxury projects will be a tough sell in view of the TDSR framework.
The PPI will likely drop between 5 to 10 per cent as the full impact of the cooling measures and TDSR framework continue to be felt.
In the resale market, buying activity will primarily be driven by condominiums in the suburbs due to their relatively affordable quantum price.
Buyers, now is the time to start your property hunt as it will be your market.
Meanwhile, sellers will have to be more realistic in their asking price.
Low ball offers will be the norm, which will make it challenging for property agents.
The luxury market will see low transactions with those who cannot hold on to their properties likely to sell below valuation.
The HDB market
As the demand for families have been met, the HDB said it will now focus on the needs of other segments of the population
Expect more two-room BTO and studio apartments to be rolled out in 2014 to cater to singles and senior citizens respectively.
According to the HDB, it will increase the number of two-room flats in non-mature estates from 2,600 units in 2013 to 5,000 units.
It will also offer 700 studio apartments to meet the needs of seniors wanting to right-size.
Three-room flats and larger flats will be reduced by 18 per cent from 22,600 units in 2013 to about 18,600 in 2014.
Singles and senior citizens will be spoilt for choice.
A lot more first-timers applicants will be able to ballot for a BTO flat.
In the resale market, low and zero COVs will be the norm.
Hence, it will continue to be a buyers’ market as they will be spoilt for choice from both new and resale flats.
Hot areas like Bishan, Queenstown, Redhill and Tanjong Pagar can still command high COVs but they will likely be not more than S$50,000.
The days of million dollar HDB flats are now over.
Hotspots to buy
With the new URA Draft Masterplan, where should you look to buying property?
Punggol is set to be an exciting satellite township blending its natural rustic environment and modern convenience served by malls and LRT stations.
The Waterway Punggol will enhance property values around the area.
This government-led initiative became the first for an Asian country to win the Global Superior Achievement Award from the International Water Association in August 2012.
Already, we are seeing a lot of mass market condominium projects and BTO flats being launched in the area with good take-up rates.
Woodlands is also another hot area to watch out for with the new Woodlands Regional Centre that will unlock property values there.
The decentralised business district is expected to draw small to medium enterprises to relocate there due to the cheaper costs of doing business.
Woodlands is also set be a vibrant township acting as a crossroads between Singapore and Iskandar Malaysia.
Singapore is currently the top investors in this special economic zone.
Already plans are on the way to connect Johor Bahru to Woodlands via the Thomson MRT Line by 2018.
Feasibility studies between both governments have already been completed.
In the west, Jurong Lake District is fast taking shape with a slew of new malls, condominiums and tourism clusters around Jurong East MRT station.
The entire masterplan for Jurong Lake District will be completed by 2018 with a new business district, Jurong Gateway, that will be home to CapitaLand, among others.
Those staying in Tanjong Pagar will see a new waterfront city rise by around 2030 once the Tanjong Pagar container terminal moves to Tuas after 2027.
Expect a vibrant waterfront city with a mix use of retail, residential and commercial components, in line with the URA’s motto of ‘live, work and play’ within the city.
However, price appreciation, if any, will only take place from 2030 onwards.
Investors should take a long-term investment horizon in view of this.