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1) During the past 30 years as a whole, HDBs have outperformed private properties. Of course, there are some years when HDBs do underperform.
2) Private property prices plunged 45% during the Asian Financial Crisis and 25% during the Great Financial Crisis.
3) IQ expects a 10-15% price decline for private properties this time around.
- Tailwinds: Lack of exuberance in prior years, currently low borrowing costs, manageable employment situation with gvt stimulus.
- Headwinds: High unsold inventory and heavy pipeline of new launches.
Key questions home owners and buyers should be asking themselves right now
- Past down cycles: How much did Singapore residential prices decline during past down-cycles?
- HDB versus Private Property: Which performed better in the last 30 years?
- Supply going forward: Does Singapore face a oversupply housing issue?
- Demand going forward: How is residential property demand holding up?
- Price decline expectations: What price declines should we expect for this recession?
I hope to answer them in this article.
Historical returns on Singapore residential property
HDBs vs private properties. Which has done better? While many young adults aspire to own a private property, it is interesting to note that over the past 30-years, HDBs in general would have been a better investment in terms of price appreciation %. Though this should hardly surprise when we remember that over 10 units of the Pinnacle@Duxton have changed hands for over S$1m. Note that these five-room units were priced between $345,100 and $439,400 when launched in 2004.
The chart below. We show the HDB Price Index against the Private Residential Price Index from 1990 to 2019, rebased to 100% as of 1Q1990.
Another interesting thing to note… in the above chart, Private Residential Property tends to exhibit sharper price declines during periods of financial stress. This may be due to a larger proportion of HDBs being owner-occupied and consequently less likely to be sold in a recession, compared to properties that are held for investment purposes.
Tailwind: Exuberance in the residential market muted in recent years
The effect of government cooling measures, starting 2010. The above chart shows the year-on-year % change of the HDB and Private Residential price indices. Note that cooling measures had been implemented in various stages from 2010 onwards to kerb speculation in the property market and keep housing costs affordable for the populace. Now looking back at the chart, we can see that prices fluctuations have been rather muted after the initial post-2008 recession recovery pop. It looks to us that the multiple rounds of government price cooling measures on residential properties have paid off.
The InvestQuest’s view: I personally expect price declines for residential properties to be relatively milder this time around (relative to past crises), as exuberance in the property market has been muted in the past few years. Comparatively, the last three pre-recession periods of 1993-1996, 1999-2000, 2006-2008) showed robust property price increases. Plus, the government retains the option to loosen cooling measures implemented previously, something that was absent in previous recessions.
Tailwind: Residential buying demand should hold up
Singapore generally enjoys a tight labor market, even in crises. In the past two decades, unemployment rate hit a peak of 4.8% during the 2003 SARs outbreak (image below).
Compare this to other countries. During the same time frame, peak unemployment was 12% in Eurozone (during 2013 European Debt Crisis) and 10% in US (during 2009 Global Financial Crisis). In the current Covid-19 crisis, the US is likely going to hit an unemployment rate peak of approx 20%.
But how will Singapore do during this Covid crisis? For this recession, the most recent estimates from financial institutions are pointing to Singapore unemployment rates hitting the up to 3.7% before staging a strong recovery in 2021. If these forecasts are accurate, we shouldn’t see too many forced property sales as a result of job losses.
Singapore unemployment rate forecasts for 2020-2021
Tailwind: Borrowing costs for property expected to remain low
Borrowing rates getting cheaper. I was pleasantly surprised when I saw my mortgage bill recently, as Singapore borrowing rates have finally started falling in a big way. Assuming a S$500k mortgage, that would mean much needed savings of ~$400 per month, compared to mortgage repayments made in 2019.
Analysts don’t expect 3-month Sibor to rebound above 2% anytime soon. This is important because it reduces the risk of mortgage repayments rising to unsustainable levels that might result in foreclosures.
Headwind: Relatively high unsold inventory and heavy pipeline of new launches makes for a buyers market
Upcoming residential property supply situation according to CBRE’s 2020 Singapore Property Outlook:
“Looking ahead, there will be about 40 projects scheduled for launch in 2020. Taking into consideration an additional unsold inventory of 30,473 units (Figure 14), 2020 will be a buyer’s market and potential buyers will be spoilt for choice. Projects with a key differentiation in location, developer reputation and pricing will do well.“
Other headwinds
Takeaways from a more updated and sombre CBRE report. According to the 1Q Market Outlook report, we should expect softer economic conditions to hold back buyers and developers with weaker holding power to start offering more competitive sales pricing.
One of the factors CBRE mentioned was the ban on foreign visitors into Singapore. According to URA, foreigners make up 5-10% of buyers of non-landed private homes – see light blue column in chart below).
Plus there’s the temporary closures of sales galleries due to the 2-month circuit breaker. This will have an adverse impact on sales volumes.
2) For unnits sold, the data was downloaded from URA Rrealis on Novv 8, 2019, and the latest transactions were dated Nov 3, 2019.
3) The percentages shown indicate the proportion of purchases by PRs and NPRs against the total number of non-landed private homes (excluding executive condos and en bloc sales sold in the period)
Source: List SIR, URA (as quoted in the Business Times)
The InvestQuest’s View
The InvestQuest’s view: The below table summarizes my opinions on the residential property market. While most would be concerned on poor buyer demand, I am equally concerned with an oversupply of unsold residential units pushing down prices. A 10-15% price discount for the next twelve months should be what new private property buyers should be aiming for in my view.
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