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Roaring for more
As Hong Kong and Singapore bounce back, their property markets are boldly in sync. Alex Frew McMillan reports
Singapore’s property market has traditionally been a lot more laid-back and slow-moving than Hong Kong’s. Sudden moves used to be rare. The Lion City, with 4.7 million people at last count, showed little of its city-state sibling’s interest in property speculation.
All that has changed in the past couple of years. Since 2007, Singapore has seen a sudden surge in interest in private property. In a year and a half, prices raced up some 50 percent to their peak just before the financial crisis hit home. Although they crashed after Lehman Brothers went bust in September 2008, private property purchases and prices are now back above their pre-Lehman levels.
So the Lion City has roared back to life after a short, sharp shock. The main effect of the financial crisis was to cause the market to seize up, temporarily, in terms of transactions. With little bank lending, a “Singapore standoff” developed between buyers looking for bargains and sellers waiting for a rebound.
“Everyone thought the market would go lower and lower, so they were holding on to their bullets,” Amous Lee, the director of international investment at Knight Frank, said. “Then they saw the market coming back. So now, when projects launch, the take-up rate is good.”
Like Hong Kong, which at 7.1 million people is roughly 50 percent larger than Singapore in population terms, around half of the population lives in public housing, and is essentially not involved in property. But the Singapore government has been encouraging citizens to convert their units to private ownership, and is also looking to boost Singapore’s population by recruiting what it calls “foreign talent”.
Around one in five Singapore residents isn’t a Singaporean – it has around 1.68 million residents who are overseas citizens. Overseas owners are free to buy or lease condominiums in Singapore, though they can only buy landed property on Sentosa Island. Overseas buyers helped fuel the dramatic runup that started in 2007.
The overseas buyers are primarily from Malaysia (26 percent), China (19 percent), Indonesia (14 percent) and India (14 percent), according to figures from Knight Frank and the Urban Redevelopment Authority. More than half the buyers are already permanent residents in Singapore, which has recently attracted high-profile immigrants such as the movie stars Jet Li and Gong Li.
The downturn produced by the bankruptcy of Lehman Brothers had a similar effect in Singapore and Hong Kong. Both cities briefly slipped into recession, thanks to their dependence on trade. And real estate transactions all but stopped.
The volume of apartments launched in Singapore in the fourth quarter of 2008 was the lowest in 23 quarters, or almost six years. Prices for luxury apartments dropped 8.8 percent in the last three months of last year alone, to S$2,703 (HK$14,777) per square foot, according to data from Colliers International. That was the steepest fall in prices since the start of the world’s economic worries, and left the city-state’s luxury homes down 14.8 percent for last year.
Sentiment changed in the second quarter of this year, when stocks in Asia began to rebound and the pent-up demand for property spilled over into strong sales. Extremely low interest rates have also meant investors in Singapore, as in Hong Kong, have had little option but to put their money in stocks or property, if they want anything more than a token return on their money.
“Over the last half a year, there weren’t a lot of developers launching projects,” Lee noted. “Buyers were waiting for a good deal, and in January and February, they were waiting for fire-sale product, people who can’t pay a mortgage. But developers were waiting for the market to come back.”
Sales volumes turned around in February, after the Lunar New Year. Nassim Park Residences and The Ritz-Carlton Residences Singapore Cairnhill grabbed headlines for high-profile, high-price sales. And activity in the secondary market for luxury property has tracked the bullish interest in new high-end apartments.
Colliers says one of the turning points was a strong launch for The Caspian, a 712-unit development at Boon Lay Way and Lakeside Drive. Likewise the Alexis, a 293-unit project at Alexandra Road, saw successful sales.
A total of 2,108 new apartments came on the market in the second quarter – triple the pace of the first three months of this year. Developers have consistently sold more than 1,000 apartments per month since the market turned around in February. June was a record, with sales volume of 1,825, higher than the previous peak set in August 2007. The secondary market has also picked up.
Buying sentiment may wane after that strong resurgence, Jones Lang LaSalle says. Over the next year, luxury rents may fall until the economy shows sustained growth, while property shoppers will continue to seek out bargains.
“With economic conditions remaining weak, developers are likely to keep pricing affordable, while buyers continue to seek projects with upside potential,” the company states.
But Knight Frank says it has seen strong sales at Jia, a development on Wilkie Road in the prestigious District 9 area. The project has sold around half of its 22 units, encouraging the developer, SDB Asia, to raise prices from S$1.6 million for a two-bedroom unit to S$2.1 million, or around S$1,450 per square foot. Similarly, the Viva Condominium project developed on Thomson Road by Allgreen Properties sold around 80 percent of its units at around S$1,700 per square foot.
Prices for luxury apartments turned around sharply in the second quarter, figures from Colliers show, with values up 12.7 percent over the previous three months, to S$2,590 per square foot. That more than made up for the decline after Lehmans went bust. Average luxury-home rents, which had fallen 13.8 percent in the first quarter of this year, stopped dropping and edged up 0.9 percent from March through June.
So was there a financial crisis? Not really, if you ask home buyers looking for bargains in Singapore. As in Hong Kong, this is looking more and more like a Western financial crisis rather than a global one. There was a brief window of opportunity to snap up distressed sales, but you had to act at the height of the crisis, when everyone was at their most anxious. Even if you had the nerve to buy, you wouldn’t have found that many willing sellers.
Singapore real estate has not hit the heights that it scaled in 1997, just before the Asian financial crisis. But the focus is now on making sure the rally doesn’t get out of hand again.
The Singaporean government has become concerned enough about the sudden rebound in prices to step in, attempting to prevent speculation from getting out of hand. In mid-September, the Monetary Authority of Singapore said it was scrapping an “interest absorption scheme” for loans on new properties and mandating a return to a scheme of “progressive payments”.
Buyers in Singapore were previously able to put down 10 percent to 20 percent of the purchase price on a new, off-plan apartment and defer any interest or further payments until completion – a system prime for “flipping” apartments for a short-term gain.
By scrapping that system, the government is requiring off-plan buyers to use a system that was once standard in Singapore. Buyers put down a small booking fee and the normal 20 percent of the purchase price on signing the sales and purchase agreement. Then they must make regular payments during the development of a project: 10 percent when the foundation work goes in, 5 percent when the electrical wiring goes in, and so on.
Though the interest-absorption scheme had been waning in popularity anyway over the course of this year – those homes commanded a premium – the government hopes a return to the system of gradual payments will ensure sales go to end users instead of speculators.
The share of deals that overseas buyers accounted for fell from 20 percent in the last quarter of last year to 16 percent in the first three months of this year. But with Singapore looking to recruit more residents through its “foreign talent” policy, and with the number of buyers from China in particular increasing, they are likely to play a key role in the market.
As with Hong Kong, the dark days of September 2008 seem to be behind Singapore’s residential property. “Over the next six months, barring major setbacks such as adverse developments on the global and local economic fronts, as well as the eruption of disasters such as a pandemic outbreak or terrorist attack, market sentiment is likely to stay upbeat,” a Colliers report stated.
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