Are property developers overly bearish?

By EdgeProp Singapore / EdgeProp | September 7, 2018 3:30 PM SGT
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Developer sentiment has darkened significantly following the government’s announcement of the new property cooling measures, according to a recent survey done by the National University of Singapore (NUS) and the Real Estate Developers’ Association of Singapore (REDAS).
According to the NUS-REDAS Real Estate Sentiment Index (RESI) report, outlook for prime residential and suburban residential sectors were hit the hardest after the cooling measures. In comparison, outlook for business-park/hi-tech space and hotel/serviced apartments were unaffected.
RESI comprises a Composite Sentiment Index, a derived indicator for the current overall market sentiment; a Current Sentiment Index and a Future Sentiment Index, which track changes in sentiments over the past and the next six months respectively.
Prior to the announcement of the latest cooling measures on July 5, NUS and REDAS had earlier completed the report on developer sentiment for 2Q2018. A follow-up survey that was done after the cooling measures saw the Composite Sentiment Index plunge from 6.6 to 3.9.
The Current Sentiment Index was also revised downward from 6.7 to 3.9, while The Future Sentiment Index fell from 6.4 to 4.0.
According to REDAS, a score below five indicates deteriorating market conditions, while scores above five indicate improving conditions.
Developers’ sentiment pre-and-post cooling measures
1) Real Estate Sentiment Index (1Q2010 – 2Q2018)
Source: NUS-Redas Research
2) Comparison of Pre- and Post-Measures Sentiments
Source: NUS-Redas Research
“Too big a risk” to go into property development now?
After the cooling measures, fewer developers expected more new launches in the next six months, with the proportion falling from 87.9% in 2Q2018 to 65%, according to the RESI survey.
In terms of unit price change, only 13.5% of developers anticipated residential property prices to increase in the next six months after the cooling measures, compared to 81.8% in 2Q2018. In addition, 48.6% expected a price drop after the measures – a huge increase from only 3% in 2Q2018.
The dampened sentiments are reflected in the dip in collective sale activities. According to Tay Huey Ying, head of research and consultancy at JLL Singapore, the average collective sales deal rate has plummeted from 5.7 sites sold per month pre-cooling measure, to just 0.5 deal sold per month post-cooling measure.
Subdued interest and measured bids in the first post-measure Government Land Sale (GLS) tender exercise also reflect developers’ sentiment that private housing demand is more adversely affected by the new cooling measures compared with demand for ECs.
Sites that were on tender include the Dairy Farm Road residential site with commercial use on the first storey; the non-landed residential site on Jalan Jurong Kechil; and the executive condo (EC) site at Canberra Link in Sembawang.
Weighing in on the property cooling measures, Cheng Wai Keung, chairman of Wing Tai Holdings had earlier said that the listed property group will now adopt a conservative stance.
It’s too big a risk to go into property development now,” he says. “If a developer wants to buy a piece of land for development, you have to pay 5% [additional buyer’s stamp duty] upfront, and if you don’t finish selling in five years, there will be a further 25% ABSD on the land cost.”
But it’s not all gloom and doom...
“Developers are more worried than what I think they should be worried about,” says Alan Cheong, head of research and consultancy at Savills Singapore. According to Cheong, there will continue to be buying demand despite the cooling measures and one reason for this is because homebuyers are now more experienced.
“Buyers will unlikely fall into the same trap that they fell into between 2013 and 2015,” he tells EdgeProp. Property cooling measures that included hikes in ABSD, seller’s stamp duty (SSD) as well as total debt servicing ratio (TDSR) loan framework were introduced in June 2013.
Cheong explains: “At that time, buyers could afford to buy properties even with the new TDSR framework, but many held back because they thought prices would collapse and they could come back into the market at a lower rate.
“But that did not happen. In fact, for new launches between 2013 and 2017, prices did not show significant decline. While prices for high-end properties in the Core Central Region (CCR) were relaunched with lower prices due to the deferred payment schemes, prices of new launches in the Rest of Central Region (RCR) and Outside Central Region (OCR) actually remained firm,” he says.
Incomes have outpaced property prices
Another reason for the continuation of buying activity is that incomes have gone up about 15% - 18% for the top 30 percentile of households from 2013 to 2017, says Savills’ Cheong.
“Within the same period, property prices had fallen by 9%, thus private housing affordability had increased during that period. So even if you factor in a 3.9% rise in 1Q2018 and a further 3.4% increase in property prices in the next quarter – by the end of 2Q2018, property prices were still more affordable than they were prior to the introduction of the maiden TDSR framework,” says Cheong.
Property is still a highly desirable investment
“Further, people generally have more faith in property than other financial products in the market. Which is why, many opt to utilise their savings and CPF to buy real estate,” says Savills’ Cheong, who adds that household income statistics do not capture how much savings have been accumulated.
“Transaction volumes were low in 1Q2018 and 2Q2018 due to the lack of launches at the time,” says Cheong.
But because the market is fundamentally backed by household income levels and savings, he believes that the private residential market will come back into steam over time.

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