With Covid-19 sweeping across the globe, we might see the worst recession yet in recent decades. PM Lee Hsien Loong describes Covid-19 as "humanity's most dangerous crisis".
With movement restrictions and quarantines, tourism, retail and trade are all being affected.
If you have been looking to buy a property, should you buy during this unprecedented season when even showflats are shuttered and physical viewing disallowed?
OrangeTee & Tie Research analysed over 15,000 homes sold between 2007 to Q1 of 2020 that were bought and resold. These data included subsale and resale transactions.
Of the 2,737 transactions in the luxury segment, 67.5% of the properties were profitable with an average gross profit of about $330,931.
The city fringe segment had 4536 transactions. Of those, 84.5% were profitable with an average gross profit of $240,719.
Comparatively, the mass market segment had 8439 transactions. A whooping 91.5% were profitable when sold. The gross average profit was $192,401.
When You Purchase Your Property is Important
The chart above shows the amount of gross profit derived from the matching transactions in the mass market segment and the time period in which the units were first purchased.
Buyers who had bought a mass market home in Q1 2009– which was in the midst of the GFC (Global Financial Crisis) – would have made an tidy gross profit of $300,000 (on average) when they sold their properties later on. This is the highest amount of profit made over the past 17 years.
Even if they purchased their properties in Q1 2008 – at the earlier half of GFC – they still made a gross profit of about $200,000.
In fact, even buyers who purchased at the very initial stage of the financial crisis recorded higher gross profits than other buyers who purchased at any other time from 2007 to Q1 2020.
A similar pattern was observed for the mid-tier rest of central region (RCR) property transactions, seen below.
What is the chance of making a loss if you buy during a crisis?
CCR
RCR
OCR
The charts above brings one to this conclusion: the chances of making a loss on the property purchase is much lower during a crisis than properties purchased at any other time.
"Historical data shows Singapore private residential property typically sees a quick rebound after each economic crisis,"says OrangeTee & Tie’s Christine Sun.
According to data from the URA (Urban Redevelopment Authority), there is a 1% dip in the quarter-on-quarter price index in Q1 2020 after three consecutive increases.
But this dip is not as severe as seen for initial price declines for the past crises.
At the beginning of the Asian Financial crisis, a dip of 1.9 per cent was recorded in 1996. As for the Global Financial Crisis, an initial decline of 2.4 was seen in the third quarter of 2008.
How much further will price decline? It will depend on how long more the pandemic will last and also on unemployment rates and the financial health of the property owners.
At this present moment, there is not a significant number of homeowners defaulting on mortgages. This is very likely due to the government's past measures like TDSR (Total Debt Servicing Ratio) and Mortgage Service Ratio (MSR).
TDSR and MSR instils financial prudence by limiting the percentage of income used to service mortgage loans. These limits will also not apply to the principal and interest for deferred payments on mortgages, part of the Government's package to help homeowners during this challenging period.
Rental Market Remains Healthy
If you intend to buy a property to rent out, there is good news.
After the rental markets being in the doldrums for years, 2019 made a spectacular year of comeback with high transaction volume and occupancy rates. The tightening of new inventory supply and depleting stock are the likely reasons.
The rental market is still seeing a healthy number of rental transactions despite the pandemic. Rents rose across all market segments and the overall price index increased 1.1 per cent and 1.4 per cent year on year.
Foreigners are still buying Singapore Property
Despite the current economic slowdown, the basic fundaments that have attracted foreign investors to Singapore - ease of doing business, transparency, safety and political stability - will likely remain the same.
Singapore remains a favourite destination of Chinese investors to guard against the weakening yuan and anticipated inflation. These Chinese investors used to favour Hong Kong because it is closer to the mainland. However, in recent times, the pro-democracy protests have made Singapore their top choice despite the city state's higher taxes.
Three Chinese clients bought units at Marina One Residences worth SGD $20 million without any virtual tours quoted in a Yahoo News Article titled "Rich Chinese Snapping Up Luxury Homes from Singapore to Sydney".
Over the past two years, Chinese buyers are the majority of foreign buyers buying property in Singapore at 7.3 per cent of non landed private homes. Malaysians are a close second at 4.3 per cent, Indians at 1.9 per cent and Indonesians at 1.6 per cent.
More Buyers Entering the Market
There are signs that investors are streaming into the market to pick up some value buys. The number of non-landed transactions rose from 666 in the third quarter of 2019 to 951 units in the fourth quarter and then to 1,032 units in the first quarter of 2020.
The highest priced apartment transacted last quarter was a S$13.8m super luxury condominium (477sqm) situated at 15 Holland Hill. This is the third priciest apartment in the last 12 months.
As the sales volume tends to correct within three to four quarters, the window of opportunity to buy a property during the downturn is quite small.
The private home supply will dip after 2023 for three reasons.
First, the number of collective sales have slowed down since 2018 with the introduction of cooling measures.
Second, most of the projected mega developments (that are above 1,000 units) have already been launched. Examples of these projects like Treasure at Tampines, Jadescape, Parc Clematis, Parc Esta, Riverfront Residences, Stirling Residences, The Florence Residences and Affinity at Serangoon.
Third, many of the already launched projects have sold 30 to 50 per cent of their inventory.
Developers will also be more cautious in land acquisition during this pandemic. The number of new project launches will decline as a result of the decline in collective sales plus the government land sales have also been declining for the last eight years.
The number of new homes completing after 2023 will be fewer and this causes the price and rental of private homes to remain robust in the long term.
HDB Prices Will Not Plunge
HDB prices will not see volatile swings in prices as they are purchased for own occupation and not for speculation.
The HDB price index stayed stagnant in the first quarter of 2020 compared to the previous quarter.
There were 5,531 caveats recorded in Q1 2020 (source: data.gov.sg), the highest first quarter sales volume in eight years.
Demand remained buoyant due to government measures introduced last year. These measures aimed at improving affordability for buyers and demand for flats. Some of the measures include enhanced CPF Housing Grant, increased income ceiling and larger home loans for eligible buyers.
Conclusion
The majority of economists are seeing signs of a protracted slowdown with a gradual recovery in the months ahead.
After measures are lifted, there will be an increase in property transactions given the pent up demand.
Singapore's economy and property have always recovered after every crisis. In this Straits Times article, PM Lee said, "an even stronger and better Singapore" will emerge after this Covid-19 pandemic.
Buying a property during this pandemic will be a good opportunity to invest if you have the funds available. Do subscribe if you want to be kept updated of any fire sales or if you wish to be kept updated of new launches. If you need a home anyway, pandemic or not, you still need a roof over your head.
Just be on a lookout for value buys as there may be further price correction in the next few months. Do not be too hasty to jump in before looking carefully at the property and doing due diligence before committing. Being financially prudent has never been more important.
Do schedule an appointment with me if you need some guidance.
About the Author, Susanna Wong:
I am a realtor based in Singapore since 2006 and I am passionate about helping others find their dream home or find financial freedom through property investments.
My father is a successful businessman. My dream is to be financially free through running my own business. I started my own cold pressed juice business in 2014 and have since returned to full time realtor work in 2020.
For the past 14 years, I have dealt with a variety of properties, ranging from HDB rentals and sales to transacting Good Class Bungalows.
I have two lovely daughters, Sophie and Sage and they are my reason for working hard and living to be better each day.
When I am not busy dealing with properties, I love spending time with my family and relaxing over a cup of iced white coffee.
