With Singapore prices and sales volumes falling, some property owners faced with difficulty in paying loans could be forced into ‘fire sales’, while some developers are looking overseas amid tough competition, says a development chief
The subdued Singapore housing market could see some buyers forced into ‘fire sales’ and in a tough market some local developers are looking for opportunities overseas, says a leading developer.
Singapore’s second largest developer, City Developments Ltd (CDL), says the luxury market, in particular, remains subdued, with developers holding back from putting new projects on the market.
Prices are subdued, residential rents are falling, but land prices are escalating and some local developers are now looking at foreign opportunities, says City Developments Executive chairman, Kwek Leng Beng.
His comments came as CDL announced its third quarter results, posting net earnings of S$127.21million for the third quarter, up 4.7% year-on-year with a rise in revenue of 58.3% to S$1.32billion.
Kwek Leng Beng says, “Residential property prices in Singapore have yet to stabilise and there are no signs of any rebound.
“Prices are expected to remain subdued across all residential market segments, as the regulatory environment remains challenging. In the short run, the various Government cooling measures, especially the total debt service ratio (TDSR) framework and additional buyer stamp duty (ABSD), will continue to weigh heavily on the market, impacting both sales volumes and prices of residential units.”
The high-end market has been hit hard, with prices still below its peak of 2008, he says. “While there has been increased recent interest in this segment, transaction activity remains slow. This has led to a pullback of new residential property launches in the market. Residential sales volume is likely to remain subdued.
“Due to constrained finances, affordability is a key concern amongst buyers. The market will continue to be price sensitive and favour the trend towards smaller unit format, which ensures affordability to meet buyers’ demands. However, these shoebox units are limited as the Government had issued new rules to cap its supply since 2012.”
Average residential rents are declining, coupled with a weak secondary market and things could get worse and some borrowers who cannot service their debt may be faced into ‘fire sales’, he warns.
“From the Group’s experience, having gone through many property cycles, if this trend continues, with prices dipping more, some mortgage borrowers affected by lower rentals, may have difficulty servicing their loans, possibly leading to forced fire sales.”
However, there are still opportunities for investors, including those from overseas, he points out.
“Savvy investors who believe in Singapore’s prospects will continue to read positively into the property market with a medium to long-term perspective. New launches that are priced carefully will continue to sell, as buyers only need to make progressive payments based on stages of construction, and they are confident that the market will recover over time.
“Land prices for public Government Land Sales (GLS) tenders appear to remain relatively resilient with strong demand especially from foreign developers, particularly from China, due to the sluggish property market in their home country.”
Some developers, including foreign companies, are sacrificing margins to win contracts, resulting in some Singapore developers looking overseas for new opportunities, he says.
“Developers are also banding together in joint ventures to spread their risks in view of escalating land prices. Foreign construction companies are also tendering, sacrificing their profit margins in construction, to keep their employees and machineries occupied.
“With limited land bank and the punitive restrictions imposed by the Qualifying Certificates (QC), which makes it difficult for affected developers to buy land from the private market, competition for prime lands is still keen as developers need to restock their land bank. The Group hopes that the QC rules will be reviewed in light of the changing landscape.
“Ironically, as foreign players enter the Singapore market, local developers are seeking opportunities overseas. The Group is cautiously optimistic as it enters new markets. It will continue to maintain discipline in its strategic investment approach for land or property acquisitions in Singapore and abroad.”
Alan Cheong, Senior Director Research & Consultancy of Savills, Singapore, says there is a ‘transactional famine’ – although the market may not dip as low as some fear.
“Homebuyers are waiting and watching because they think prices will decline further.” The Singapore economy continues to face headwinds from the lacklustre global economy, geopolitical risks both in Asia and Europe, as well as its own restructuring efforts.
In the latest Singapore residential sales briefing, he says, “The private property market is expected to remain sluggish as a result of these factors acting in tandem with the cooling measures and TDSR.
“With the price indices falling at a snail’s pace, the market fear is that the prevailing cooling measures may continue to be in force for an extended period. Even as the decline in prices slows, the transactional famine is expected to persist.
“On the other hand, given the lag in sales transactions, the cash reserves of potential buyers are slowly building up from each salary cheque received, plus bonuses and salary rises earned.
“This potentially bright spark could mean that for 2015, although transaction volumes may be lower than pre-TDSR, it may not be as tepid as many are presently expecting.”
By Adrian Bishop, Editor, OPP Connect