Worst 3rd quarter private home market since 2016
On October 27, URA released real estate statistics for 3rd quarter 2023. Their press release headline “Overall private residential prices remained broadly flat” is an understatement.
Last quarter, despite developers released 10 new projects and 2,805 units for sale, the market sold only 1,946 new units. On a year-on-year basis, it is 11 percent lower than 2,187 new units sold in the 3rd quarter of 2022. Compared with two years ago in 3rd quarter 2021, it is 45 percent lower than 3,550 new units sold in that quarter.
The market recorded total transactions of 5,201 units (new sale, sub-sale and resale). Again, this is a decline of 15.4 percent year-on-year compared with 6,148 units in 3rd quarter of 2022 and 42.7 percent lower than 9,083 units transacted in 3rd quarter of 2021.
In fact, the sales performance is worse than 3rd quarter 2018 after the announcement of new cooling measures in July that year (Read “New cooling measures: The show has just begun”). For the private home market, both new sale and total volume have gone back to 7 years ago. In 3rd quarter 2016, after a major price correction in the stock market, the private home market sold 1,981 new units and transacted a total of 4,596 units.
Furthermore, the URA quarterly report said about 9,000 private residential units (including ECs) were completed in the last quarter. This is the highest since 2nd quarter 2016. Thus, it is not surprising that vacancy rate immediately climbs. Indeed, vacancy rate of private residential units has jumped from 6.3 percent to 8.4 percent in one quarter. If we were in other countries, no doubt it would be put up as a shocking property headline.
2023 will sell just 6,000 developer new units?
According to URA’s data, since 1st quarter 2023, every quarter the number of new units launched by developers far exceeds the number of new units sold in the market. No wonder we still have 16,747 new units remain unsold.
Two months earlier in August, Huttons was still confident that “developer sales could end the year at around 8,000 units”. However, Edmund Tie was fast to lower its original forecast of between 7,000 and 8,000 units to between 6,500 to 7,500 units. Then in September, CBRE was quick to lower its forecast to between 6,500 and 7,000 units. On the contrary, Knight Frank still insisted that “new home sales are still on track to hit between 7,000 to 8,000 units”. But after URA’ reported disappointing 3rd quarter results, the spokesperson had no choice but to adjust his forecast down to 7,000 units.
In the first three quarters, developers only managed to sell a total of 5,329 new units. For the 4th quarter, can developers sell 690 units just like in the last quarter of 2022? Frankly, we should all celebrate if developers could sell between 6,000 and 6,500 new units for the whole year of 2023.
For the first nine months of this year, there are already a total of 471 new units bought at the sales galleries being returned to the developers. If the new private home market continues the trend of giving back 50 to 60 new units, the total new homes sold this year would really be shy of 6,000 units.
Despite this, the new private home market would still be better than 2008 in the midst of the Global Financial Crisis. The private home market only cleared 4,264 new units for that year. So 2023 could be at most a 14-year low.
Wealthy Chinese buying properties in this safe haven?
In URA’s 3rd quarter 2023 real estate statistics, CCR private home prices continue their decline of 2.7 percent. This is after falling 0.1 percent the previous quarter.
Another alarming decline is the 3.6 percent drop in landed property prices. In a small place like Singapore, closing a few GCB deals can easily push up the landed home price index.
Still recall how the agency spokespersons predicted revenge property purchase in Singapore after China’s border reopened?
– In May, a South China Morning Post article headline read “Buyers from China are snapping up luxury Singapore property at a record rate”. Orangetee said the number of luxury condo units bought by Chinese buyers was up 158 percent year-on-year in the first quarter.
– ERA said Chinese buyers were “undeterred by the additional 30 percent tax foreign buyers have to pay on property – due to the allure of Singapore being a safe haven, as well as their preference for real estate as a store of wealth.”
– PropNex said “Singapore’s safety and security, stable political environment, pro-business policies and good infrastructure are attractive to global investors”.
These are all politically correct statements. But in the 3rd quarter, where were the wealthy Chinese snapping up Singapore luxury condos and landed homes?
Impact of money laundering on the private home market
Since mid-August, money laundering scandals have added flavors to the monotonous life of Singaporeans. “Singapore money laundering” suddenly becomes a popular google search term.
The media is quick to show the authorities’ effectiveness to clean up money laundering. On October 30, Bloomberg came up with the article “Singapore’s $110000-a-month mansion market grinds to halt” (reposted by The Straits Times with the headline “Singapore luxury bungalow sales tumble after money laundering bust”).
Knight Frank said “high-end bungalow sales are set for their worst year in nearly a decade, with just eight sold as at the end of September”, compared with 60 units transacted in 2021.
The Business Times (October 26) echoed with the article “Good Class Bungalow rentals slip following money-laundering scandal”. CBRE lamented the drying up of rentals for GCBs.
However, barely five months ago in June, the same CBRE spokesperson told the media that “ultra-high net worth individuals and families setting up offices or businesses in Singapore have the ability and willingness to pay top rents for GCBs or prime bungalows.” (“Luxury property rents soar amid demand from high net worth individuals”, Channel NewsAsia, 1 June 2023)
The flip-flopping technique is more impressive than frying roti prata.
For years, developers, agents, bankers, valuers and lawyers have been facilitating deals from “wealthy Chinese” to snap up luxury homes and commercial properties in Singapore. Developers sold their projects. Agents pocketed their commissions. Stakeholders charged their fees. IRAS collected buyer stamp duties. Then they all suddenly realized that these are dirty monies flowing to Singapore for money laundering.
What a surprising aha moment!
High rates and low affordability to stay for longer
Last week, after Federal Reserve kept rates unchanged, stock prices had a short rally – a sugar high the market really need these days.
Remember early this year some so-called analysts told us that Fed would start cutting rate in 2023? And the US 30-year fixed mortgage rate would fall back to 5 percent soon. Today, it has gone up to 8 percent. Likewise, Singapore’s 3-month compounded SORA climbs to 3.76 percent.
Every time Chairman Jerome Powell said in the Fed meeting that high interest rates would stay for longer. He’s not planning any rate cut. Those vested industry players and salespeople would try to convince us the opposite.
Each time after a Fed meeting, there would be articles with similar headlines such as “Powell signals Fed is done with interest rate increases”. The so-called signal is nothing but these analysts’ wishful thinking which is no better than wild guess.
Lesson learned: This is usually the sales pitch of marketers when they persuade us to buy. For factors not under the control of ordinary folks like us, better keep our eyes wide open before making any financial decision.
The problem is: We don’t know how long the rates will remain high. The longer the rates stay high, the riskier the property market. Forget the salespeople’s talk about doubling your investment in five years. You may lose your shirt much earlier than that.
I like what the writer said in the CNN article “Why the housing market is going from tough to terrible”:
“To bring affordability back to long-term averages, it would take some combination of up to a 37% decline in home prices, mortgage rates dropping by 4 percentage points, or a 60% growth in median household incomes.”
This is almost an impossible mission!
Stop telling us things are going to be fine
The Monetary Authority of Singapore (MAS) in its biannual macroeconomic review report said Singapore’s economy is expected to be better in 2024 and grow at a faster pace. Inflation will also ease partly due to the upcoming hike in GST.
Did we hear end of 2022 that the economy in 2023 will be better? It is always good to be optimistic. But experiences have taught us that we also need to be realistic.
Singapore’s non-oil domestic exports fell 13.2 percent in September on a year-on-year basis. In fact, the little red dot’s exports have slipped for twelve straight months. With new and growing risks around the world, a high Singapore dollar and higher-for-longer interest rates, how can an export-oriented Singapore expect to be better next year?
Also, if a hike in GST can ease inflation and accelerate growth, why didn’t that happen this year after GST increased from 7 percent to 8 percent? Will Singaporeans stop buying anything when GST is 9 percent in 2024? Then why don’t we increase GST all the way to 10 percent or higher to grow Singapore’s economy once and for all?
“John Maxwell said, ‘courage is making things right, not just smoothing them over.’ I always respect people who tell me the truth, no matter how hard it is. I am always ready to face reality in the property world. Because my experiences have told me that, in any investment, not knowing the truth can cost me a lot of money.”
Food for thought
For now and the near future, the market favors those who have more cash than loans. The reverse is also true. Those who have financial difficulties are not the poor who lament about high inflation and high mortgage rates. On the contrary, those in serious financial troubles are the rich who have overleveraged.
Banks are happy that the higher-for-longer interest rates result in record savings in the banks. We credit this to high interest rates for savings and fixed-income products. But another reason is the trend that individuals and companies alike are unwilling to spend. In this increasingly uncertain market, they are afraid that they cannot earn it back after they spend their money. This in turn affects demand for what vendors are selling.
“Housing is a necessity. But private housing is not. Our need to upgrade our home or invest in properties can wait. Developers can mass produce new projects, but they cannot produce buyers and tenants to own and occupy them. They can create supply. But they cannot create demand.”