Property market should not run ahead of economic fundamentals: DPM Heng

By
/ EdgeProp Singapore
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January 19, 2021 9:03 PM SGT
SINGAPORE (EDGEPROP) - The launch of Kingsford Huray Development’s Normanton Park, which saw 600 units sold by 9pm on Jan 16, was followed by warning shots across the bow by the government two days later.
Desmond Lee, National Development Minister, said at the BCA-REDAS Built Environment and Property Prospects Seminar on Jan 18: “The government is monitoring the developments in the property market very closely. We will adjust our policies if necessary, to maintain a stable and sustainable property market for all Singaporeans.”
MIXED-HOUSING-SINGAPORE-SKYLINE - EDGEPROP SINGAPORE
Despite the pandemic, developers sold 10,024 homes in Singapore last year, exceeding 2019 levels by 1.1%, based on URA flash estimates (Credit: Samuel Isaac Chua/ The Edge Singapore)
Even amid the pandemic and economic challenges, Lee says the property market has stayed generally resilient and “we are starting to see some signs of renewed positive sentiments in the property market”.
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“The pace of increase in private housing prices has gathered momentum since the second quarter of last year.”
He also noted that developers’ sales at recent launches have been robust. “With developers’ inventory of unsold units progressively coming down, there has been healthy bidding interest in recent Government Land Sales tenders.”
"The property market is not insulated from ongoing uncertainties in the global economic outlook nor setbacks to the recovery in the domestic labour market," says Lee. He, therefore, cautioned developers to “remain prudent” in their land bidding and work with agents “to market their projects responsibly”. He also advised households to “exercise caution in their property purchase decisions”.
Lee adds that the government is committed to “maintaining a stable and sustainable property market”.
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More property cooling measures ahead?

Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic Policies and Minister for Finance, who was a guest of honour at the 61st anniversary celebrations of REDAS on the same day, took a similarly cautionary note, “In our local property market, we are also starting to see renewed positive sentiments and some gathering of momentum in prices,” he says. “We do not want to see the property market run ahead of the underlying economic fundamentals.”
Against such a backdrop, Heng says, “We must continue to enable young Singaporeans to own their homes and fulfil their aspirations.” He adds: “This is why we pay close attention to the property market, to ensure that it remains stable.”
Having both the DPM and the National Development Minister deliver similar warnings on the same day have led experts to speculate that the government could be mulling new property cooling measures.
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“In our view, the comments may signal that authorities are considering another round of cooling measures,” says Jefferies Equity Research. “If this happens, launches and volumes may slow temporarily.”
Meanwhile, DBS Research says that “any policy response will likely be pre-emptive in the current cycle rather than reactive, in order to prevent a further escalation in property prices in 2021”. This comes on the back of an extended period of low interest rates which are driving mortgage rates lower, DBS adds.
DPM Heng - EDGEPROP SINGAPORE
DPM Heng: We do not want to see the property market run ahead of the underlying economic fundamentals (Credit: REDAS)

Pandemic-defying housing market

Despite the pandemic, developers in Singapore sold 10,024 homes in the city-state last year, exceeding 2019 levels by 1.1%, based on URA flash estimates. December, which is typically a quiet month in the real estate market, saw 1,217 private housing units sold, 57.2% higher than that of November, which recorded 774 units sold. It was also the highest sales in the month of December since 2012.
Flash estimates from URA on Jan 3 showed overall private home prices up 2.1% in 4Q2020, bringing the full year to 2.2%. HDB flash estimates showed resale public flat prices up 2.9% in 4Q2020, with the full-year increase expected to be 4.8%.
DBS attributes the strong performance to four drivers. First, former en-bloc households in the 2016 to 1H2018 cycle are returning to the market. Second, buyer confidence in most Singaporeans having held on to their jobs due to various job schemes. Third, HDB upgraders purchasing after the minimum occupation period (MOP) on their first homes, and fourth, low interest rates which have resulted in liquidity in the market.
The appeal of the Singapore property market may be further enhanced internationally given that it has effectively curbed community spread of Covid-19 as well as the number of fatalities, says DBS. This has projected properties in Singapore as a “safe haven” investment for foreign investors, supported by world-class health facilities, according to the analysts.
“While sales volumes in 2020 have not been driven by foreigner purchases, we do not rule out that this trend will resume once travel (business and leisure travel) re-starts,” it adds.

Government seen to adjust minimum home sizes

Further, DBS also observed that over the past five years, HDB upgraders have been focusing on purchasing homes that have an affordable quantum. However, while transacted absolute private home prices have remained fairly stable, the analysts have noted that median home sizes have shrunk while psf prices remain high. This trend was also observed at the launch of Normanton Park, where the average price of units sold was $1,752 psf, “which represents a new high for a 99-year leasehold condo in District 5”, states the report.
“This trend, if left further unchecked, will mean that upgraders (especially HDB upgraders) will continue to ‘trade-up’ their lifestyles to smaller homes,” according to DBS. “In addition, the possible flexible working arrangements post the Covid-19 pandemic implies that workers will spend part of their working times in the home, thus requiring more space.”
Given the price trends, DBS suggests that a possible tweak would be to adjust the average minimum home sizes in new developments. “This would result in developers re-thinking land bids and temper further price increases,” it adds.
Nicholas Mak, head of research at ERA Singapore, agrees. “If the government were to stipulate a minimum unit size for one-, two- , three and four-bedroom units, this will have an overall moderating effect on the psf prices, and buyers’ perception of property prices,” he says. “Developers will also have to change the way they compute their bids for private and government land sale tenders.”
Stipulating minimum unit sizes is “more effective at making property prices more affordable than another round of ABSD [additional buyer's stamp duty] hikes”, adds Mak.
Find out here on why Normanton Park project sold 600 units in 1 weekend