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Investments, Property

HOW WILL THE REAL ESTATE MARKET PERFORM IN 2020?

As we approach the end of the circuit breaker period in Singapore, house hunters and their realtors alike are preparing for an avalanche in prices. Since the subprime crisis in 2008, real estate investors enjoyed a decade of prosperity with growth in their real estate portfolio exceeding 63% (see figure 1.1). This unprecedented moment is what bargain hunters had been wishing for and surely their prayers will be answered now. Or will it?

Figure 1.1 – Residential Property Price Index since 1990

In the marketplace, there were plentiful vociferous opinions from practitioners and investors alike. The optimistic legion representing developers and real estate marketing agencies would continue to show proof of land acquisition cost and reflect on the higher cost of construction after the circuit breaker period. The pessimistic legion of homeowners will commence disposing their assets at discounted prices with fear of further price correction. Most of us would have witnessed the polarization of public opinion towards pricing but few would have deciphered the clattering in a cerebral manner. Would decision making have been different if consumers were shown the unsold supply numbers of developer launches (see Figure 1.2)?

Figure 1.2 – Supply of unsold new launch units since 2007

Since early 2019, our company and its partners began warning consumers of the imminent risks of price correction. The impact of the July 2018 cooling measure may have tapered demand (see figure 1.3 on demand of private residential property), but real estate prices are still trending near its peak. We cautioned against excessive gearing and encouraged prudent financial and mortgage planning. We skewed towards resale homes where there is imperfect information and property buyers are more likely to achieve value for money. We continue to discourage speculative buying in developer launches other than those for owner-occupation.

Figure 1.3 – Transaction volume of private residential properties since 1997

Property purchasing would usually be a seamless process.  After all, by visiting several show galleries and open houses, one tends to be able to identify a good deal by making comparisons. The personal preferences for layout, space and its grandeur supersede the need for analysis both on the macro and micro levels. The average consumer and real estate salesperson alike fail to denote the elemental wind of change when the storm is brewing. After all, real estate prices will continue accelerating in the long term. At the same time, the discerning ones would have avoided months of dismay of having to wait for a new cycle of hope before it can break-even the peak entry levels.

Our government announced, in April (see figure 1.4), a slew of measures which prevented the possibility of a sharp decline in prices. Most notably for the home loan borrower, you may apply with the banks and defer your loan repayments till the end of the year. With another 5,134 new launches expected to complete by the end of this year, this measure will bring relief to investors who are disrupted by the halt in renovations, uncertain rental outlook and a massive herd of tenants with low-balling offers.

Figure 1.4 – Guidelines on deferment of secured loans and mortgage payments

It was reported in April that more than 17,000 consumers applied to defer their mortgage payments. This comprises of some distressed owners and the opportunists. With time on their side, the question is, when will be the time those distressed owners will subside to their fears and markdown their asking prices? It is unlikely that this will occur before the end of this year.
Meanwhile, there will still be a pocketful of gems lying beneath the ocean. Unless you have the abundance of time and resources for research and analysis, it will be more efficient to share your concerns with a qualified advisor who can guide and inform you when the deal comes along.
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