COVID-19: Will the Singapore Property Market Crash?
Updated: Sep 5, 2021
5 June 2020
Yesterday, a client called me to ask about her property valuation, and also about the Singapore Property Market situation. She feels that it is currently a "Buyers' Market" and hence, she would not be able to obtain a good price for selling her current property. She is not alone.
Like her, many people I have spoken to have the same mindset, that the economy seems bleak and property prices are sure to keep dropping. Some are even hoping that the market will crash, so that they may jump in on a cheap deal.
Given the current COVID-19 situation, on the local and global arena, there is still a long way to recovery from the impact and effects of this Coronavirus spread. Besides the drastic impact on our health and healthcare facilities, this global pandemic has cast its shadow on the world's economic, social and political spectrums. To curb the spread of the virus, many countries have undertaken the drastic measure of lockdowns. Inevitably, many businesses are affected negatively, with some having to lay off their workers or ask their staff to take unpaid leave. Some businesses have no choice but to close down, and many people have lost their jobs and source of income. And slowly, we begin to see social problems surfacing. Some people have not taken well to the lockdowns - people have started to display anxiety disorders, violent and irrational behaviours. And even as we are all racing to find a cure, a vaccine to the Coronavirus, the two big brothers of the world turn to finger pointing and hostility.
The economy seems bleak, doesn't it?
Turn back the clock to the year 2002. The world saw the outbreak of the deadly Severe Accute Respiratory Syndrome (SARS) virus. Singapore recorded a total of 238 cases with 33 fatalities, a 14% fatality rate.The economy took a plunge, and the Singapore private property prices saw a total decline for 5 quarters from Q3, 2002 to Q4, 2003. However, the overall decline in prices was considerably marginal at -2.3%. Meanwhile, the demand for private properties saw a drop in Q3 and Q4, 2002, with a quick rebound in Q2, 2003, documenting a +147.4% recovery from Q1, 2003.
The financial crisis of 2007–08, also known as the global financial crisis (GFC), was a severe worldwide economic crisis. It is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s. The crisis began in 2007 with a depreciation in the subprime mortgage market in the United States, and it developed into an international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. Excessive risk-taking by banks such as Lehman Brothers helped to magnify the financial impact globally. Massive bail-outs of financial institutions and other palliative monetary and fiscal policies were employed to prevent a possible collapse of the world financial system. The crisis was nonetheless followed by a global economic downturn, the Great Recession. The Asian markets (China, Hong Kong, Japan, India, etc.) were immediately impacted and volatilized after the U.S. sub-prime crisis. The European debt crisis, a crisis in the banking system of the European countries using the euro, followed later. Quantitative easing (QE) is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. According to the International Monetary Fund, the US Federal Reserve System, and various other economists, quantitative easing undertaken following the global financial crisis of 2007–08 mitigated some of the economic problems after the crisis. Following the 3 QE measures implemented during the period Dec 2008 to Oct 2014, Singapore property prices witnessed a total recovery of +62%. QE has recently been initiated by the Federal Reserve in the United States in response to the current COVID-19 pandemic.
Formally known as the Federal Reserve, the Fed is the gatekeeper of the U.S. economy. It is the central bank of the United States -- it is the bank of banks and the bank of the U.S. government. The Fed regulates financial institutions, manages the nation's money and influences the economy. By raising and lowering interest rates, creating money and using a few other tricks, the Fed can either stimulate or slow down the economy. This manipulation helps maintain low inflation, high employment rates, and manufacturing output.The last time the Fed cut the Fed funds rate to 0.25% was in December 2008, amid the worst financial crisis since the Great Depression. The rate stayed there, at virtually zero, until 2015. Then, as the economy picked up steam, the Fed began to raise the benchmark, and it rose steadily until 2018. In 2019, the Fed reversed course, slowly lowering rates in a sign that growth was beginning to slow. Then in 2020, the escalating outbreak of the COVID-19 coronavirus pandemic rocked not only the financial markets but the broader global economy and everyday life around the world. In its second emergency response to the Coronavirus pandemic, the Federal Reserve lowered its target for the federal funds rate—the benchmark for most interest rates—to a range of 0% to 0.25% on March 15, 2020.
Singapore’s banks lend to each other using the Singapore Interbank Offer Rate (SIBOR).The Swap Offer Rate (SOR) is also used by the country’s banks. This is a rate denominated in US dollars. Although these two rates are different, they tend to move together. Variable rate residential mortgages are usually linked to SIBOR while commercial property loans are based on SOR. When the Fed raises its short-term rates, both SIBOR and SOR will move in the same direction. This will directly affect Singapore’s real estate values. As borrowing costs rise, there will be a contraction in demand from individuals looking for a loan to buy residential property. Investors who want to purchase real estate for the returns that it offers will also defer their plans. When the Fed raises its rates, it is likely that there will also be an indirect impact on Singapore’s economy. Those individuals who have taken variable rate mortgages will see their instalment amounts rising, leaving them with a lower disposable income at the end of the month. Conversely, when Fed recently lowered its rates in response to the Coronavirus pandemic, Singapore’s bank interest rates dropped and currently stands at a low 1.24% for SIBOR and 1.5% for Fixed rate (as at 5 June 2020). This translates into lower monthly mortgage payment instalments and higher monthly disposable income.
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. The COVID-19 crisis has re-affirmed the value of Singapore’s key institutions and the key tenets of the country’s “prudent fiscal policy”. In his round-up speech for the Solidarity Budget - Singapore’s third round of support measures in response to the coronavirus outbreak, Deputy Prime Minister Heng Swee Keat shared that Singapore has been spending prudently, investing wisely and planning consistently for the long-term. As such, Singapore is “able to tap on our deep financial reserves – our current and past reserves which have been so carefully built up, invested and managed”. And this has allowed us “to respond to the crisis without having to borrow, and therefore burdening our future generations with repayment obligations.” Almost S$60 billion was being dedicated to “deal decisively” with the crisis.
Further, in a whole-nation approach to ease the crippling impact of the Coronavirus outbreak, the Singapore Government has been introducing many relief schemes and support for the various business sectors as well as individual citizens. On 6 April 2020, Deputy Prime Minister and Finance Minister Heng Swee Keat introduced the second round of economic support in Parliament. The S$5.1 billion supplementary budget, called the Solidarity Budget, aims to help firms get through the COVID-19 outbreak and particularly the “circuit breaker” period, so that companies could resume operation as soon as the restrictive measures are lifted. In order to help businesses, the government will provide aid in terms of Cash, Cost and Credit. On 6 May 2020, the Singapore government announced some Temporary Relief Measures for the property sector due to the effects of the “Circuit breaker” to contain the spread of the COVID-19 coronavirus. These measures include:
(i) Extension of the Project Completion Period (PCP) by 6 months for residential, commercial and industrial development projects;
(ii) Extension of time by 6 months for the commencement and completion of residential development, and sale of housing units in residential development projects in relation to the remission of the Additional Buyer’s Stamp Duty (ABSD) for housing developers;
(iii) Extension of the PCP and/or disposal period by up to a total of 6 months for residential development projects under the Qualifying Certificate (QC) regime for foreign housing developers; and
(iv) Extension of time by 6 months for the sale of the first residential property in relation to the remission of ABSD for the second residential property purchased by a Singaporean married couple.”
Further, the COVID-19 (Temporary Measures) Act 2020 (“the Act”) seeks to offer temporary relief to businesses and individuals who are unable to perform their contractual obligations due on or after 1 February 2020 because of COVID-19.The Act covers relevant contractual obligations that are to be performed on or after 1 February 2020, for contracts that were entered into before 25 March 2020. These include: Secured loan agreements to SMEs, Construction contracts and supply contracts, Event and tourism-related contracts, Hire-purchase and conditional sales agreements, Leases and licences of non-residential property, as well as Options to purchase and sale and purchase agreements with housing developers.
On 26 May 2020, Deputy Prime Minister and Finance Minister Heng Swee Keat delivered the Fortitude Budget in Parliament, setting aside S$33 billion to help Singaporeans and businesses tide through the COVID-19 pandemic. This is the fourth support package this year. Together with the Unity, Resilience and Solidarity Budgets announced earlier, Singapore is dedicating close to S$100 billion - or almost 20 per cent of its GDP - to support its people during this crisis. About 80 per cent of the nearly $100 billion set aside to tackle the coronavirus pandemic will be used to support businesses and help workers keep their jobs. The rest of the money will fund public health and social support measures, said Deputy Prime Minister Heng Swee Keat.
Since 2009, the Singapore Government has introduced and implemented nine rounds of Cooling Measures in the Singapore Property Market to moderate the supply, demand and pricing of the Singapore Private Residential Market. These were essentially policies affecting the Loan to Value that home buyer or owner may take up on their property, the monthly mortgage that home owners or buyers may service (in the form of Total Debt Servicing Ratio and Mortgage Servicing Ratio), policies affecting the loan tenure, and introduction of the Additional Buyer’s Stamp Duty and Seller’s Stamp Duty. All these measures aim to prevent speculation in properties, regulate property pricing, and prevent excessive leveraging or borrowing. With the Singapore Government playing an active and pivotal role in regulating the Singapore Property Market, Singapore home owners and buyers will be assured of greater stability in their property value.
According to the Urban Redevelopment Authority of Singapore (URA), the overall price index of private homes slipped 1% quarter-on-quarter in the first quarter of 2020, after rising for three consecutive quarters. But this decline is still not as severe compared to price declines observed in previous crises.
Property investment should be a long term commitment. And Singapore has always been a top investment destination and safe haven for investors. Despite the current pandemic and economic slowdown, the basic fundamentals that have attracted foreign investors all these years, such as the ease of doing business, transparency, safety, sound fiscal policies, good healthcare and transport infrastructure, and political stability, remain unchanged.
From historial data as shown above, Singapore has always recovered well from past crises. The Singapore Private Property Market has likewise, demonstrated fairly quick recovery and rebound from the toughest crises like SARS, the Asian Financial Crisis and Global Financial Crisis. The Singapore Rental Market remains strong, without any documentation of drastic decline in rental volume or prices. In fact, rents rose across all market segments, documenting an increase of 1.1% quarter-on-quarter and 1.4% year-on-year in the first quarter of 2020.
There are also signs of investors streaming back to the market. The number of luxury home sales in the Core Central Region (CCR) have been increasing over the past few months. The number of non-landed transactions rose from 666 units in the Q3, 2019, to 951 units in Q4, 2019, and 1,032 units in Q1, 2020. In April 2020, 102 new home sales were from the Core Central Region, 37% of the total of 277 units transacted. Marina One Residences recorded 7 sale transactions in May 2020.
Well-located private homes with attractive pricing also continue to draw buying interest. New launch properties like Jadescape, Kopar at Newton, Parc Clematis, Parc Esta, Stirling Residences, The Florence Residences and Treasure at Tampines continue to record steady sales.
Historical data has shown that while prices and sales volume of private properties take a dip during a crisis, sales demand usually picks up shortly after. And with the Circuit Breaker and and safety measures in place as Singapore reopens, there is no doubt there is a pent up demand for new homes. Furthermore, interest in Singapore private properties remain strong from foreign investors, especially buyers from Mainland China and Indonesia.
Meanwhile, supply of new homes is expected to decline after 2023 due to the following three reasons:
a) Collective sales have slowed down since the latest cooling measures were introduced in 2018;
b) Most of the mega developments with above 1,000 units have already been launched; and
c) Many of the launched projects have recorded significant sales of at least 30% of the total units.
In conclusion, the Singapore Private Property Market will likely witness a price weakness in the face of COVID-19 and the global economic uncertainties. Some home owners may not have the capacity to hold their properties for the longer term and submit to panic selling. And some property developers may offer some discounts or star buys for certain units, as in the case for 38 Jervois where the last 16 units were snapped up by 4 June 2020, within a week of its relaunch. Once the pandemic is over, the market will pick up again, probably as swiftly as it did when SARS hit us. In every crisis, there lies an opportunity. And as with every crisis in the past, real estate will rebound even stronger. The Singapore Government is using an all-nation approach to combat the effects of the pandemic, tapping on our nation's deep reserves to support business owners and individuals. With interest rates at a record low making mortgage loan payment very attractive, property investors will find their property investment giving them very worthwhile returns with the considerably higher rental yield. Singapore, a well-known safe haven with good healthcare and financial facilities, and political stability, continues to present a very attractive investment opportunity for both local home buyers and foreign investors. And in this land scarce country, the Singapore Real Estate can certainly be your best hedge against any crisis.
危机 (wei ji)
“The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger--but recognize the opportunity.” ― John F. Kennedy
Pauline is a Senior Marketing Director (Preeminent Group) with ERA Realty Network Pte Ltd. Prior to that, she had a 10-year stint in the civil service (Productivity & Standards Board and the Ministry of Social & Family Development) doing events management and promotion of Quality Service, Productivity and Social Services. Her philosophy is to Do Good, Be Good. She feels that it is a blessing to be able to help others. She enjoys eating, traveling and cooking for her beloved boys.