2020: A year of contrasts

By
/ EdgeProp Singapore
|
December 24, 2020 6:00 AM SGT
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SINGAPORE (EDGEPROP) - January seemed like a long time ago, when Singapore reported its first Covid-19 case. It became a global pandemic on an unprecedented scale — exacting a severe toll in terms of lives (1.66 million deaths as at Dec 18, and still rising) and the global economy. Daily lives were disrupted. Masks became a necessary accessory.
Singapore’s gross domestic product (GDP) dipped 0.3% y-o-y in 1Q2020, and then plummeted 13.3% y-o-y in 2Q2020. Although GDP recovered in 3Q2020, it was still in negative territory. The Ministry of Trade and Industry (MTI) forecast that the economy would contract by 6% to 6.5% this year, in Singapore’s worst recession since independence. On the bright side, the economy is expected to return to positive territory, with healthy GDP growth of 4% to 6%, in 2021.
Unemployment rate stood at 3.6% as at October 2020 — the highest rate since June 2004.
BLD-TANJONG-PAGAR-OUTRAM-PARK-VIEW-FROM-79-ROBINSON - EDGEPROP SINGAPORE
The economy is expected to return to positive territory, with healthy GDP growth of 4% to 6%, in 2021 (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Dips and peaks

Amid the economic malaise, pandemic fears and travel restrictions this year, the Singapore residential property market appears to have a life of its own. Monthly new home sales, which plunged to 277 units in April — at the onset of a two-month-long “circuit breaker”, have recovered steadily since.
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New private home sales more than doubled to 3,517 in 3Q2020, from 1,713 units in 2Q2020, and were up 7.2% y-o-y, says Ong Teck Hui, JLL senior director of research & consultancy. He attributes the rebound in sales to “pent-up demand following the reopening of showflats and the resumption of property viewings” from June 19, 2020. That pent-up demand overrode concerns of adverse economic conditions, he says.
In the first nine months of this year, developers moved 7,379 new private homes, relatively close to the sale of 7,469 units over the same period a year ago, according to JLL’s report on the Singapore residential market outlook for 2021.
The secondary market saw 3,530 private homes change hands in 3Q2020, about 3.7 times the 951 units transacted in the previous quarter. The tally of private homes sold in the resale market for the first nine months was 6,601 units, compared to 6,803 units during the same period a year ago.
The threat of Covid-19 and the expected recession has led to expectations of private residential prices declining in 2020. In 1Q2020, URA’s private home price index eased 1.0% q-o-q. Contrary to market expectations, the index rose 0.3% q-o-q instead of continuing the slide in 2Q2020, even with a 13.3% y-o-y plunge in GDP.
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In 3Q2020, the index was up a further 0.8% q-o-q, while GDP contracted 5.8% y-o-y, indicating the divergence between economic fundamentals and home prices.
ura-price-index - EDGEPROP SINGAPORE
Credit: JLL Research

‘A paradox’

“It appears to be a paradox that despite a bad recession, the private residential market is keeping well afloat with fairly cautious, yet optimistic, sentiments,” says JLL’s Ong.
New home sales totalled 645 units in October and climbed to 767 units in November, and December is likely to round up the year with an estimated 900 to 950 units sold, estimates Lee Sze Teck, director of research at Huttons Asia. “This caps a remarkable year for the residential property market,” he says.
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Lee is expecting new home sales for 2020 to be in the 9,600 to 9,700 range, which is just a tad shy of the 9,912 units sold in 2019. He is forecasting that developers could sell between 8,000 and 9,000 new homes in the coming year.
Why is the residential market still fairly resilient amid the current pandemic and recession?
Past volatile market cycles led to sharp corrections in private home prices, as seen in the 45% plungein prices from 2Q1996 to 4Q1998 during the Asian
Financial Crisis and the 25% drop from 2Q2008 to 2Q2009 when the Global Financial Crisis struck, relates JLL’s Ong.
“Price crashes during those economic crises were partly due to the sharp escalation in prices before these events,” says Ong. Specifically, in the five years before the peak in mid-1996, prices had leapt by 184%, while a 57% climb in prices over five years was recorded before the market peaked in mid-2008.
Property cooling measures implemented in the last 10 years have prevented over-exuberance in the residential market and maintained price increases at a sustainable rate, says Ong.
income-growth-vs-ppi - EDGEPROP SINGAPORE

Income growth outpaced housing prices

In the 10 years between 3Q2010 and 3Q2020, private home prices rose at a compounded annual growth rate (CAGR) of 1.3%, according to URA’s private property index — which was within economic fundamentals as GDP increased at a CAGR of 3.8% between end-2010 and end-2019. “The absence of price volatility and an asset bubble in the recent market cycle may have limited downside risks to prices in the current downturn,” reckons Ong.
Between end-2010 and end-2019, the average income of employed resident households rose by 41.9% (or CAGR of 4.0%), outstripping the 10.3% growth (or CAGR of 1.1%) in residential property prices, says JLL. Therefore, private residential prices are generally still affordable to many buyers in the current market.
This is especially true in suburban sub-market or Outside Central Region (OCR), which recorded median price of $1.04 million for non-landed homes in the first three quarters of 2020; and city fringe sub-market or Rest of Central Region (RCR), where the median price of non-landed homes was $1.38 million for the same period, according to JLL.
Consequently, several new projects in the OCR and RCR have seen strong sales in the first three quarters of 2020 (based on caveats recorded as at September, and compiled by JLL Research): Treasure at Tampines (709 units sold), JadeScape (448 units sold), Parc Clematis (447 units sold), Parc Esta (377 units sold) and The Florence Residences (372 units sold).
This was also evident at certain new project launches this year: The first major launch of a suburban project this year was the executive condo Parc Canberra in Sembawang. It chalked up sales of 316 units out of a total of 496 units (64%) at an average of $1,080 psf on the first weekend of launch in February.
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This was followed by the launch of The M, a 522-unit, 99-year leasehold development on Middle Road in the Core Central Region (CCR). A total of 360 units (69%) were sold on its opening weekend in February, with average price of $2,450 psf.
Another standout project was Penrose, which sold 60.3% of its total units (341 out of 566 units) on the first weekend of launch at prices averaging $1,500 to $1,700 psf at the end of September. The Linq at Beauty World saw 115 out of 120 units sold at an average of $2,150 psf in mid-November. Meanwhile, Clavon sold 442 out of 640 units or 70% in one weekend in December, at an average price of $1,640 psf. That capped the year, which saw 26 new projects rolled out.
Home-buying demand to remain stable - EDGEPROP SINGAPORE
Home-buying demand to remain stable or improve next year, alongside an expected economic rebound, with new private home sales take-up estimated at 9,000 to 10,000 units (Photo: CEL Development)

Budget measures

JLL reckons home buyers’ confidence stemmed partly from the government’s swift and decisive budget measures amounting to nearly $100 billion to support businesses and employment.
A key element of the budget measures is the Job Support Scheme which provides wage support ranging from 25% to 75% of the first $4,600 gross monthly salary per local employee, depending on which business sector they are in. Other measures to mitigate the costs of doing business include rental waivers, property tax rebates, corporate income tax rebates, deferment of income tax payments and several others. Credit support measures also provided a lifeline for businesses, including SME working capital loans, trade loans and temporary bridging loans.
“The government’s responsiveness in strengthening the budget measures in rapid succession between February and May added to the public’s confidence that the crisis is being managed decisively,” says Ong.
Specific assistance to the residential market came in the form of the Monetary Authority of Singapore’s (MAS) directive to allow homeowners in financial difficulty to defer their mortgage payments until Dec 31, 2020. Some loan relief measures were later extended into 2021.
The six-month extension to additional buyer’s stamp duty (ABSD) sale deadlines as well as the one-year extension of the project completion period for residential projects, together with the six-month extension for the sale of the first property of a buyer who bought a second property in relation to ABSD remission, have also helped to ease the pressure on developers and many home buyers, says Ong.
He expects home-buying demand to remain stable or improve next year, alongside an expected economic rebound, with new private home sales take-up estimated at 9,000 to 10,000 units. The healthy demand could be accompanied by prices rising by 2% to 4% in 2021.

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