In my previous blog post, I promised to write about why property prices will hold but I decided to talk more about the property supply & demand so that it will be easier to understand how prices move.
So let’s dive right in.
Firstly, let’s look at the property supply since the 4th quarter of 2012.
(taken from: https://sbr.com.sg/residential-property/news/chart-day-over-36000-private-residential-units-remain-unsold )
As you can see the supply in 2012 was low and the supply went up from 2013 to 2016.
In fact, developers started bidding aggressively for land from 2012 to 2013.
What happened to the property market during this period?
Two development that was launched during this period, J Gateway and La Fiesta had really good sales.
J Gateway was fully sold in 1 day and 81% of La Fiesta was sold in about a month.
Now the key thing is not just about how quickly the development was sold, but rather the prices that the buyers entered.
Based on the charts, the average pricing for J Gateway in 2013 was about 15xx psf and the highest transacted was at 17xx psf.
La Fiesta average pricing in Jan 2013 was at 11xx psf and the highest transacted was at around 12xx psf.
So what am I trying to say?
If you are aware of the average prices during that time, 11xx psf is considered relatively high.
However, people were snapping up units!
When the developer released the new launches for sale, it was over-subscribed and many people went for the show flat preview.
Now imagine you are the developer and you have secured a huge number of cheques for balloting.
How confident will you be?
Will you price the development higher or lower?
As we read earlier, developers started bidding aggressively for land from 2012 to 2013.
Do you see that when developers start to bid for land aggressively, the prices moved up?
Is there a co-relation?
How did the government react to the steep climb in prices?
The government’s main objective for the property market is not just growth, but sustainable growth.
This means that they cannot allow prices to climb in a non-sustainable manner.
That is why the government introduced 2 major cooling measures in 2013.
Let’s look deeper into that.
Looking at the chart, do you see that in 2013, property prices were at its peak and that there was a drastic drop in prices till 2017?
What exactly happened during this period?
In January 2013, the government increased the Additional Buyer Stamp Duty (ABSD) to reduce speculation in property purchases. (ref to: https://www.mas.gov.sg/news/media-releases/2013/additional-measures-to-ensure-a-stable-and-sustainable-property-market )
However, prices continued to climb.
In June 2013, the government introduced the Total Debt Servicing Ratio (TDSR) framework for property loans. ( ref to: https://www.mas.gov.sg/news/media-releases/2013/mas-introduces-debt-servicing-framework-for-property-loans )
This framework was to ensure financial prudence and ensure that property buyers were not over-leveraging when buying a property.
As this framework limited buyers on the amount they could borrow, the property prices started to plummet.
What happened after the cooling measures in 2013?
The property market started to slow down and there was an oversupply of unsold units spread out in the next few years from 2013 to 2016 due to the aggressive land bidding that happened in 2012/2013.
Here is a chart on the supply of private property units from 2013 to 2018
We also start to see that many launches during this period did not do well.
This is a huge contrast to 2013 where projects experienced a huge take-up rate!
How did the developers react to the oversupply?
1) They became more sensitive in terms of prices
2) Some gave discounts to buyers
3) Some re-launched with new prices (e.g. drop price)
Many of them had to reduce their profit margin to attract more sales. (Which is a good thing for buyers.)
However, many buyers may have decided to take a “wait & see” approach to see how will the cooling measures affect the market.
As time pass, when buyers begin to “accept” the prices, they will start to flock back to the property market and start to consume which causes the supply to dwindle.
As you can see from the chart below:
Looking at the chart (similar to the above supply chart on 2012), we can see that for the year 2021 onwards, there is very little supply.
Our government watches the property market very closely and will intervene when there is a need.
In November 2015, there was an article published by the straits times that spoke about the oversupply concern.
(ref to: https://www.straitstimes.com/business/property/home-oversupply-a-concern-redas )
Here’s a quote from then Finance Minister Heng Swee Keat from that article:
“Mr. Heng said the Government “has always taken a medium-term approach towards managing land supply, based on fundamental demographic and economic factors, and has encouraged a competitive and transparent environment to ensure a well-functioning property market”.
He added that the Government has used various measures “to smooth out the cycles and promote market sustainability over the medium term”.”
(taken from https://www.straitstimes.com/business/property/home-oversupply-a-concern-redas )
This simply means that if the property market becomes too “hot” and “unsustainable”, the government will intervene to ensure sustainability.
So voila!
In 2017, 2 major events happened:
1) On 11 March 2017, the government ease the property cooling measures by cutting the Seller’s Stamp Duty (SSD) from 4 years to 3 years and slightly relaxing the Total Debt Servicing Ratio (TDSR) rules.
(ref to https://www.straitstimes.com/business/property/govt-eases-property-cooling-measures-sellers-stamp-duty-cut-tdsr-relaxed )
2) The Enbloc fever came back. Even if you have not been following the property news closely, you would have probably seen the news about En-Bloc every other day during 2017.
As expected, supply started to increase again.
During the 2017 En-Bloc fever, prices started to shoot up again.
We began to see a huge turnout at the show flats once again…
(ref to: https://www.straitstimes.com/business/property/strong-take-up-of-twin-vew-apartments )
According to the news, Twin Vew units were sold at an average of $1399 psf but from the transactions table below, we can also see that there were units transacted at $15xx psf.
Twin Vew’s strong response actually showed that there were significant demand in the property market.
Yet again due to the sharp increase in prices, there was an intervention from the Singapore government.
On 5 July 2018, the Additional Buyer Stamp Duty (ABSD) rates were raised and the Loan-To-Value (LTV) ( ref to: https://www.mas.gov.sg/news/media-releases/2018/raising-additional-buyers-stamp-duty-rates-and-tightening-loan-to-value-limits )
Let me quote from the Monetary Authority of Singapore (MAS) media release (link as above):
“After declining gradually for close to 4 years, private residential prices began rising in 3Q2017. Prices have increased sharply by 9.1% over the past year. Demand for private residential property has also seen a strong recovery, as transaction volumes continue to rise.
The sharp increase in prices, if left unchecked, could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply.
The Government has therefore decided to raise ABSD rates and tighten LTV limits for residential property purchases.”
Because of this announcement, there was a mad rush to various show flats before the new rules kicked in!
(ref to: https://www.straitstimes.com/business/property/new-private-home-sales-jump-to-26-times-junes-on-last-minute-buying-before-cooling )
After the 2018 cooling measures, the property market cooled down (as expected) before prices started to shoot up gradually.
Meanwhile, En-Bloc and government land sales began to slow down.
How about the property supply situation now?
You can read more from my previous blog post: https://letstalkproperty.sg/are-we-having-a-real-estate-oversupply-in-singapore/
Conclusion
To be honest, I did not expect this post to be this long when I first started writing.
However, I feel that it is very important to understand the property cycle and market trends before committing to a property purchase.
After all, it might be the most expensive thing you buy in your lifetime.
From what I have shared in this blog post so far, can you see some similarities between 2013 & 2017?
When there is a shortage of supply, developers usually start to buy land.
When that happens, prices usually go up.
This creates a feeling of confidence in the property market and thus buyers will start to swamp in and make property purchases.
Retrospectively, the prices that these buyers bought may not be as attractive to the prices people bought during property oversupply.
In all of these property trends and cycles, one thing remains constant. Our government will always be there to ensure that the property market growth remains sustainable. If it becomes overly “hot”, the government will intervene with various measures and frameworks.
Some of you may be wondering, “What is the price outlook for the property market as of now? Will there be an intervention by the government?”
I promise I will touch more on this in my next blog post.
The truth is no one knows for sure what will happen in the future.
There are two types of buyers, one that “wait to buy” and another “buy & wait”
Nobody can tell you for sure if it is the best time to enter the market, but if we study the past trends, prices are usually more favourable when there is oversupply in the market.
Wondering if it’s the right time to buy, sell, or wait it out?
These decisions can be tough, and there isn’t a one-size-fits-all answer.
But don’t worry, that’s where we come in!
At Let’s Talk Property, we are here to provide clarity to you and guide you step-by-step in your real estate journey!
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