UOB bank
June 2019
The Singapore property market was caught off-guard by the Government’s cooling measures in July 2018 which included an increase in Additional Buyer Stamp Duty (ABSD) for non-first time buyers, non-remittable ABSD for developers and the lowering of Loan-To-Value (LTV) limits by five percentage points for all housing loans granted by financial institutions. These collectively led to an immediate decline in transaction volumes both in the primary and secondary markets.
Based on the Urban Redevelopment Authority’s (URA) fourth quarter 2018 (4Q18) statistics and first quarter 2019 (1Q19) flash estimates, there are emerging signs of a subdued market in the coming months compared with the pre-July 2018 market levels where total sales volume had dipped by more than 20% quarter on quarter (QoQ) in 3Q18 and 4Q18.
Our baseline scenario will be for prices to remain flat, with downside bias of low single-digit decline in URA’s Property Price Index (PPI) on average. Ideally, sales volume is to be supply-led but this is expected to be tempered by cautious buyer demand. The balance sheets of households and developers are expected to remain generally healthy with demand supported by replacement demand arising from cashed-up en bloc sellers and first time buyers spared from ABSD.
While the upcoming strong supply of new launches, i.e. with 18,000 units launch-ready this year, will increase options for buyers and developers may price their projects competitively, there might be limited room for bargain hunting and developers hold their ground on pricing for now given their healthy balance sheet.
In addition, developers who acquired land between 2016 and 2018 will only hit the five-year sales deadline from 2021. Hence slow take-up rates may characterise the project launches in the coming months. The only challenge to that view is if developers turn pessimistic and try to mitigate their risk by accelerating sales to lock in any residual demand.
Going forward, the downside risks will stem mainly from further macroeconomic deterioration, such as negative repercussions related to any fallout from the ongoing US-China trade tariff negotiations. We expect interest rate such as the 3-month Singapore Interbank Offered Rate (SIBOR) and Swap Offer Rate (SOR) to rise before plateauing between end-2019 and the first quarter of 2020 (1Q20). This rate increase could pose additional headwind for developers for the rest of 2019.
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