The month of August saw the launch of just 194 private residential units, a record low. In fact, this was only the second time this year where the number of units launched was exceeded by the number of units sold, which was 320.
There have been many reasons attributed to this, the Lehman Brothers bankruptcy and the sale of Merril Lynch for instance. Riding on the back of the US sub-prime mortgage crisis, a falling greenback and the rising fuel prices, this was just another straw on the back of an already weakened US economy in turmoil.
The subprime mortgage crisis began years ago when many Americans undertook high mortgages thinking they would be able to refinance at more favourable terms. However, when housing prices started to drop in 2006, the number of defaulted loans and foreclosures soared, triggering the financial crisis that exists today.
“Here in Singapore, the ripples in the property market will almost certainly be felt,” says PropNex CEO Mohd Ismail. “Buyers of high-end properties (properties sold over $1,000psf) and property investors may wait to see if there are any further fall-outs from this latest blow to the US economy.”
However, he maintains that the HDB market and the lower-end private property market (properties sold under $1,000psf) should see little to no effect. While the month of August saw an almost even number of high-end and lower-end properties sold, Ismail notes that August has traditionally been a difficult month to accurately analyse as it was the Ghost Month, when property developers tended not to launch new developments.
Indeed, there have been an increasing number of private properties advertised since the beginning of September, heralding a recovery in the local private property market.
Speculators hoping for a drastic drop in prices should not hold out their hopes as selling prices are reported by the Real Estate Developers Association of Singapore (Redas) to be close to replacement costs (“Home prices near replacement cost”, The Business Times Weekend, 13–14 September 2008).
“While lower holding (interest) costs of only 3–5%, against rising labour and construction costs which have increased by over 30% in recent years, have seen many developers putting projects on hold,” says Ismail, “many smaller developers may not have the holding power.”
“However,” says Mr Adam Tan, Corporate Communications & Marketing Manager at PropNex, “developers can take some heart from the fact that since the sub-prime mortgage crisis, there have actually been a higher percentage (54%) of Permanent Residents (PRs) amongst the foreigners buying private homes here.”
He explains this as proportionately fewer foreign property investors and an increase in the number of PRs buying property to actually live in here, probably because they are working here. In fact, Mr Tan notes that the majority of the PRs, 58% in total, hail from our close Asian neighbours: Malaysia (19%), Indonesia (17%), China (11%) and India (11%).
Another piece of good news for developers is the fact that the percentage of private residential purchases who are HDB upgraders are increasing; up from 28% in 1Q08 to 34% in 2Q08.
The increased number of PRs and the rising number of HDB upgraders are a testament to Singapore’s long-term stability, not only for the economy in general, but for the property market as well. Thanks to a strong economy and political environment, Ismail expects the second half of 2008 to be stronger than the first half, as it has been in previous years.
In conclusion, Ismail forecasts a slow recovery for the private property market as a whole in the short-term, while maintaining the continued strength of the HDB market.
For enquiries, please contact:
Mohd Ismail 9487 1414 firstname.lastname@example.org
Adam Tan 9006 8726 email@example.com