Q3 housing numbers: What do they mean ?

by Colin Tan
05:55 AM Oct 29, 2010

As expected, private housing prices in Singapore rose by only 2.9 per cent in the third quarter, slower than the 5.3 per cent in Q2.

However, what caught many off-guard was that prices of high-rise apartments rose by a mere 1.6 per cent compared to 5.0 per cent previously while the 7.7 per cent rise for landed homes was much better than the 6.2 per cent a quarter earlier.

And despite more properties being put up for lease, housing rentals continued their rise albeit at a slower 3.6 per cent pace compared with 5.9 per cent the previous quarter.

Notwithstanding the harsher measures on the public housing front, resale prices continued to rise while median COV remained unchanged.

Both sales in the public and private housing sector dipped by about 10 per cent.

What a mixed bag of results.

The same inconsistency runs throughout the gamut of data. While launches and sales have dropped in the private sector, the take-up-rate actually improved.

A total of 3,561 uncompleted private residential units were sold by developers, more than the 3,501 launched for sale.

Compare this with Q2. Launched 4,180 units; sold 3,955 units. A take up rate of 94.6 per cent.

If you have been following launch prices for high-rise properties, the small 1.6 per cent rise comes as a surprise.

The only explanation I can think of is: Because there were fewer launches, the impact came mainly from completed properties.

Although similarly quiet, there were a few panic sales. However, because of the much-reduced sales volume for the entire market, their impact was magnified.

At the same time, if you have been monitoring the ads, you will have noticed that there have been a lot more condominiums being put up for lease over the past few months. Why has there not been a more forceful impact on rentals?

Speaking to some housing agents, you begin to realise that some owners - as happened in the HDB resale market - are gambling with their homes.

Rightly or wrongly, these people are convinced that a price correction will come soon. They have sold off their homes at high prices, taken to rental homes and are awaiting to re-enter the market when the drop takes place.

I would advise owners not to gamble with their homes as no one cannot predict the future even if the analysis appears spot on.

Markets worldwide, not just in Singapore, are reacting more to government policies and less to market forces.

Can anyone guess with certainty what governments will do?

In any case, do note that a price correction rarely happens when the economy is still growing even if it is just modest growth. At best, prices stay flat unless one is expecting an economic downturn.

By now, everyone knowledgeable about property knows that the entire housing market now is underpinned by low interest rates.

Minimal holding costs allows investors to get away with low rents or even keep units vacant. Low financing cost allows more buyers to purchase an investment home notwithstanding cooling measures.

Any windfall from one investor is transmitted back to the market as the beneficiary almost always re-invest most of it.

This is where foreign buyers - especially those paying high premiums - have the most impact even if their numbers are not overwhelming.

As for the landed sector, the cooling measures appear to send some of the hot monies into this segment. They are seen as less risky given their relative scarcity and predominantly owner-occupier profile.

On a quantum basis, prices are much higher. For anyone stretching themselves to buy such properties, do make sure you can hold them over a downturn, even if bought for owner occupation. The tragedy is when credit becomes tight, some may be forced to give them up because of cash flow problems.

Finally, why has there been seemingly no impact on HDB resale prices even though cooling measures for this segment appear harsher.

Cooling measures deal only with the demand side of the housing equation. For sure, investment buying is down to zero.

However, as in the rental market situation, it does not stop people in the private sector seeking refuge in public housing as they await a price correction.

It is also a supply-side problem. Here, everything is cast in stone, with fresh supply of resale flats fixed some 5 to 6 years ago.

The only other way to raise supply is to encourage those holding resale flats as investment properties to give them up via a higher property tax on rental income from resale flats or even a capital gains tax.

This will then lessen the incentives to hold onto them.



The writer is head, research and onsultancy, at Chesterton Suntec International.

Source: http://www.todayonline.com