Market sniffs from coronavirus; tweaks to cooling measures urged

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/ EdgeProp Singapore
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February 7, 2020 2:34 PM SGT

SINGAPORE (EDGEPROP) - The combination of travel restrictions and dearth of Chinese buyers is affecting demand for luxury properties in the prime districts. Most property developers are going ahead with their previews and launches but sentiments are more subdued, leading to calls for some property cooling measures to be lifted.

The Merlion at One Fullerton, a major tourist attraction, has been looking rather forlorn this past week, bereft of mainland Chinese tourists who used to arrive in hordes (Photo: Albert Chua/EdgeProp Singapore)
The Merlion at One Fullerton, a major tourist attraction, has been looking rather forlorn this past week, bereft of mainland Chinese tourists who used to arrive in hordes. It is a symbol of how important the mainland Chinese tourists are to Singapore’s economy, observes Alan Cheong, senior director of research & consultancy at Savills Singapore.
Even the luxury retail brands in prime shopping areas such as Orchard Road and The Shoppes at Marina Bay Sands are feeling the loss of their biggest clientele. Chinese tourists make up about 20% of Singapore’s international visitors: In 2019, about 3.6 million visitors to Singapore were from China. Chinese tourists were the top spenders in 1H2019, spending close to $2 billion on shopping, accommodation, and food & beverage, among others. But 51% of that was spent on shopping alone, according to Cushman & Wakefield.
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“With millions in China under an effective lockdown and a ban on Chinese tour groups and recent visitors to China, tourist arrivals especially from China are expected to slow in 1H2020,” notes Christine Li, Cushman & Wakefield head of research for Singapore and Southeast Asia.
Even the luxury retail brands in prime shopping areas such as Orchard Road and The Shoppes at Marina Bay Sands are feeling the loss of their biggest clientele (Photo: Albert Chua/EdgeProp Singapore)

Travel restrictions

The new travel restrictions have also affected sentiments in the property market. Since Feb 1, visitors of any nationality who have visited mainland China recently will not be allowed to enter Singapore, not even on transit. The exceptions are Singapore permanent residents and those holding long-term visitor’s pass. Those with Chinese passports will also not be allowed to enter Singapore. Minister for National Development Lawrence Wong said these measures were taken in an effort to minimise the risk of community spread of the Wuhan coronavirus.
“It’s unclear how long the travel bans on those with recent travel history to China and those with Chinese passports will be enforced,” says Dominic Lee, head of luxury team at Prop-Nex Realty. “But if it is prolonged, the high-end segment of the residential market will face some headwinds.”
With the travel ban in place, property developers have also curtailed marketing roadshows in China. “A huge segment of buyers in the Core Central Region (CCR) of Singapore is now gone,” concedes Savills’ Cheong. “In the short term, the coronavirus has left a hole in the market. Whatever scenarios that have been painted before, will now have to be thrown out of the window. We don’t know where the floor of the market is and we have to look beyond the near term.”
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The new travel restrictions have also affected sentiments in the property market. (Photo: Samuel Isaac Chua/EdgeProp Singapore)

The pipeline

About 17 of 39 new projects slated for launch this year are in the prime Districts of 9, 10 and 11. That translates to 44% of all new project launches in 2020. Three were launched on Jan 11, and that leaves 14 down the pike.
“Developers will still go ahead to launch, but with toned-down aggressiveness in terms of supply,” says Cheong. “If one or two [developers] hold back and others start to defer too, it’s no good because the new launches will start to bunch up when other projects that obtain their sales licence towards the second half of the year start to launch as well.”
Some property developers, however, have decided to postpone the preview of their prime condominiums. They include Grange 1866 (redevelopment of the former iLiv@Grange) by a group of investors, and Cairnhill 16 (former Cairnhill Heights) by TSky Development, a joint venture between listed construction firms, Tiong Seng Holdings and Ocean Sky International.
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The majority, however, are going ahead. “It’s business as usual, but be prepared for hand sanitisers, temperature-taking and contact-tracing declaration forms to become fixtures at the sales galleries of new projects,” says Nicholas Mak, head of research & consultancy at ERA Realty.
As the outbreak is still in the early days and continues to change daily, “developers do not want to affect market confidence”, notes Mak. “The key decision-makers in the property firms still remember SARS. The last thing they want is a plunge in transaction volume. If you look at what happened during SARS, it was an overreaction. And that’s what developers don’t want: to cause panic or an overreaction.”
Crowd at Parc Canberra on the preview weekend (Photo: Albert Chua/EdgeProp Singapore)

Going ahead

Over the weekend of Feb 8-9, Soilbuild Group will proceed with its preview of the 162-unit Verticus (the former Kemaman Point) located just off Balestier Road.
OLA, the 548-unit executive condominium located at Anchorvale in Sengkang, is on track for launch in mid-February, says Vincent Ong, managing partner of Evia Real Estate. It comes on the back of Hoi Hup and Sunway Developments’ public preview of the 496-unit Parc Canberra in Sembawang on Jan 31, which drew close to 5,800 visitors over three days. (See story on Coronavirus fears fail to keep potential buyers away from Parc Canberra's preview.)
Bukit Sembawang Estates’ general manager, Ho Jenny, has announced that it will be previewing the final phase of Luxus Hills Contemporary Collection (39 houses) later this month. In the pipeline for launch this year are the 120-unit The Atelier (redevelopment of the former Makeway View condo), a high-end condo in prime District 9; the third phase of houses at Nim Collection, located just off Ang Mo Kio Avenue 5; and the former Katong Park Towers in prime District 15. “Our immediate focus is on the launch of Luxus Hills and we are looking to pace out our launches,” says Ho.
Chip Eng Seng Corp’s property arm, CEL Developments, has indicated that it is still preparing to launch Kopar at Newton sometime in March or April this year.
More private launches, with controlled number of visitors and greater exclusivity to be expected (Photo: Albert Chua/EdgeProp Singapore)

More ‘private launches’

Postponing a project launch is not necessarily the best option for a property developer in the current market, notes Ismail Gafoor, CEO of PropNex Realty. “It’s not just the five-year time bar in which developers have to sell their projects. The issue is that for every month that a project launch is delayed, the first-mover advantage it may have had, is diluted.”
What’s more, it is getting harder for developers to secure sites on temporary occupation licences (TOL) from the government to build their sales galleries, says Desmond Sim, CBRE head of research for Singapore and Southeast Asia. “Those who have secured a TOL site for their projects are likely to go ahead with their new project launches rather than to delay.”
However, they are likely to release fewer units in each phase, adds Sim. “Instead of a big open house, there will be more ‘private launches’, with controlled number of visitors and greater exclusivity.”
Usually, property developers do not launch many new projects during the Lunar New Year lull period, says Cushman & Wakefield’s Li. “The project launches will be back in full force in March. Although there is still caution in the market, developers are unlikely to make any drastic changes in terms of launches in the pipeline,” she adds.
Some owners of properties in the resale market could hold back viewings of their homes for the time being (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Resale market – dearth of viewers

In the resale market, property agents marketing high-end condos, Good Class Bungalows (GCBs) and shophouses lament the drop in calls and viewings. Pearly Tan, associate marketing director of PropNex Realty who is marketing a corner shophouse at 60 Upper Weld Road, says calls for viewings have temporarily ceased following news about the virus.
But there are others who hold a different view. Loyalle Chin, associate division director of PropNex Realty, who specialises in the shophouse sector, says that “while mainland Chinese buyers are out of the market in view of the coronavirus, there are still local buyers viewing and scouting the market for deals during this period, which I believe will be temporary”.
Some owners of luxury condos in the prime districts of Orchard Road to Sentosa Cove, have also introduced viewing restrictions out of concern. Property agents have been receiving messages from home sellers along these lines: “Where is the client from? ... But I don’t want someone who just arrived from China coming through the apartment.”
This has also affected the GCB segment, especially where owners are residents. “There are some who are more cautious, especially those with old folks or children at home,” says Jeffrey Sim, associate executive director of OrangeTee and specialist in the bungalow segment.
Some potential buyers are hesitant about viewing homes right now, especially resale properties. “They are also worried that the seller or family members may have just returned from China,” says Samuel Eyo, managing director of Lighthouse Property Consultancy.
Credit: Cushman & Wakefield Research, Oxford Economics and URA

Impact on volume and prices

The escalation in the number of novel coronavirus infections in recent days, and the announcement of the first four cases of local transmissions in Singapore on Feb 4, has even spooked those who were nonchalant before. All this is likely to affect home sales volume in 1Q2020, notes Cushman & Wakefield’s Li.
However, prices are not likely to drop, reckons Li. “Property developers’ margins are already quite compressed. In fact, some of the existing launches could even re-align their pricing with competitors’ in the vicinity.”
The requirement to complete and sell out a residential project within five years of land purchase in order to be eligible for the additional buyer’s stamp duty or ABSD clawback is something that property developers have lamented about since it was implemented in 2013, and hiked in the latest round in 2018. “There was no ABSD during the SARS period,” points out Alice Tan, senior director of research & consultancy at Edmund Tie. For many developers, the ABSD is the main motivation to ensure that their launch schedule and sales processes are in place, she adds.
Credit: Cushman & Wakefield, URA

Learning from SARS

Many are comparing the impact of the novel coronavirus with SARS 17 years ago. The impact of SARS in Singapore was first felt in November 2002, and it was only in May 2004 that conditions stabilised, says Edmund Tie’s Tan.
There was no significant property price correction then, she adds. The overall private home prices softened by 2.3% from 4Q2002 to 2Q2004, according to the URA residential price index, observes Tan.
Total sales volume in primary and secondary markets staged a steep recovery – from a 41% fall q-o-q to 1,407 units in 1Q2003; to 3,481 units in 2Q2003, a 147% quarterly jump – notes Edmund Tie Research.
SARS was just the latest in a series of unfortunate events: from 911 on Sept 11, 2001; the bursting of the dotcom bubble; to a recession in Singapore. “It was a confluence of a lot of factors,” says CBRE’s Sim. “In a way it’s quite similar as this coronavirus comes after the US-China trade war and a global economic slowdown. The extent of the outbreak remains unknown and we hope it will end as fast as it was discovered.”
The difference this time around is that the various governments are much more prepared to implement a series of measures to contain the spread and to instil public confidence, notes Edmund Tie’s Tan. “Once the situation is under control, I believe investors and homebuyers will resume their property hunting activity.”
The escalation in the number of novel coronavirus infections in recent days, and the announcement of the first four cases of local transmissions in Singapore on Feb 4, has even spooked those who were nonchalant before (Photo: Samuel Isaac Chua/EdgeProp Singapore)

‘Yet another new element of uncertainty'

Minister Wong, who is also co-chair of the multi-ministry taskforce on the novel coronavirus, said in Parliament on Feb 3 that interim help will be given, where possible, to support firms affected by the virus that was first reported in Wuhan.
Developers feel they need help too, especially with the property cooling measures still in place. “I feel there’s a need to tweak the property cooling measures because the coronavirus has introduced yet another new element of uncertainty to a conflagration of macroeconomic uncertainty and heightened risks,” says Savills’ Cheong. The government announced on February 6 that Singapore-listed housing developers will be exempted from the Qualifying Certificate regime. (See Story: Is QC exemption balm enough to soothe the coronavirus-bruised property market?)
Some property developers are calling for an extension of the ABSD five-year period, especially for big residential developments with more than 500 units. “I think it will act as a reprieve for developers with big projects,” says CBRE’s Sim. “A staggered or pro-rated system may help to extend the shelf life of a product without putting too much pressure on prices, which is crucial in a price-sensitive market.”
Savills’ Cheong is also of the view that the ABSD for Singaporean investors buying their second, third or subsequent properties ought to be rolled back. Since July 2018, buyers have been subjected to a 12% ABSD for their second property and a 15% ABSD for their third or subsequent properties. He feels the ABSD for Singapore permanent residents and foreigners ought to be rolled back to the previous level of 2013 too.
He believes the seller’s stamp duty or SSD ought to be cut further. “If people are facing problems, especially if they are forced to sell their property due to the market environment, the SSD will exact an even heavier loss,” he adds.
The crowd on Orchard Road thinned last week (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Impact likely to be ‘short-lived’?

According to Cushman & Wakefield’s Li, “any disruption to market activity is expected to be short-lived; held up by the country’s sound economic fundamentals”. The sectors that will be the most affected are likely to be hospitality, retail and food & beverage, while the impact is likely to be more limited on the office sector, she adds.
In fact, CBRE’s Sim sees the coronavirus having “limited damage” on Singapore’s real estate market over the medium term. “Strong fundamentals remain for capital markets,” he says. “When things settle down, more investors seeking a safe haven for their capital will turn once again to Singapore’s commercial property. Prices for commercial sector are likely to remain resilient.”
The perception of Singapore as a safe haven is reinforced amid global uncertainty. Cushman & Wakefield’s Li sees aviation infrastructure (Changi Airport Terminal 5), and tourism developments such as the Mandai eco-tourism hub, Jurong Lake District as well as redevelopment of Sentosa Island and Pulau Brani, along with asset enhancement initiatives at the two integrated resorts enhancing Singapore’s spectrum of tourist attractions. The Merlion at One Fullerton will soon be in good company again.
For price trends, recent transactions, other project info, check out these projects' research page: Parc Canberra, Grange 1866, Verticus, OLÁ, Luxus Hills, Kopar at Newton, The Atelier, Nim Collection, Katong Park Towers
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