The en bloc frenzy this year has caught almost everyone by surprise.
To date, a total of 18 residential projects with a total value of S$6.34 billion has been sold this year – the highest in 10 years.
This en bloc wave will result in an additional 9,300 new homes injected into the market, going by estimates from the Urban Redevelopment Authority (URA).
The buoyant collective sales market has prompted questions by Members of Parliament (MPs) and others, who worry about its effects on the broader residential market from next year and beyond.
In Parliament last week, however, Minister for National Development Lawrence Wong struck a reassuring note, saying that prices may not necessarily increase, as developers are still subject to demand and supply forces in the market.
In fact, he said the additional supply of homes resulting from collective sales could actually help moderate price growth down the road.
In other words, both the demand and supply-side measures have been put in place for a “stable and sustainable market”, as the fundamentals of the residential market have not changed.
On this basis, I agree fully with Mr Wong that regulatory scrutiny of the property market at this stage would be premature.
After all, Singapore’s property market has just begun to stablise when the third quarter price index showed a slight uptick of 0.7 per cent.
However, the question remains whether this uptick is just a blip, or the start of a bull run? If it’s the latter, how should the government react in the event that property prices move away from the fundamentals?
In my view, the market has passed an inflexion point and is embarking on a sustained recovery path.
This is partly catalysed by the collective sales boom, and 2018 looks set to be an interesting year for both developers and individual buyers and investors. There are several reasons for this.
Firstly, the renewed interest in the en bloc market has encouraged more owners to pull their housing units from the resale market in a bid to jump on the collective sale bandwagon. Even those with little chance of success are also trying their luck.
As a result, there is now a shortage of resale properties on the market – a turnaround from the situation at this time last year, when there were too many. This lack of supply will stoke demand and prop up the market.
Secondly, developers have also been running short of units for sale. Our analysis shows that the market has remained in the oversold domain for three consecutive months, with the ratio of units sold over units launched by developers exceeding 100 per cent.
In fact, this ratio reached an all-time high of 225 per cent in the third quarter this year, indicating that developers are selling units faster than they can replenish.
Despite the buoyant collective sales volume, anecdotal evidence indicates that there are still around 10 developers who are land-starved.
As such, we expect the en bloc market to be sustained over the next 12 to 18 months or so, with potentially another 10 to15 sites being transacted during this period.
Thirdly, the rental market is also stabilising sooner than expected, benefitting from the en bloc wave, as displaced tenants would have to look for alternative arrangements.
Going by the latest URA data, green shoots for the rental market have already sprouted in the non-landed segment in the city fringe (Rest of Central Region), as well as landed segment islandwide where rental indices rose by 0.9 per cent and 0.6 per cent, respectively.
Neighbourhoods around recent en bloc sites, such as Serangoon, Hougang, the East Coast and Tampines, are likely to benefit in the coming quarters. This will underpin the rental recovery moving forward.
Lastly, landed property also staged a comeback after correcting 16 per cent from the peak in the third quarter of 2013, as buyers are making their way back to the market.
Landed properties are expected to benefit from the en bloc wave because some displaced owners could take this opportunity to upgrade to this property class, which is often seen as a status symbol.
Buyers also find more value in homes with larger floor areas, and the fear that prices will eventually increase and put these properties beyond their reach.
Although the Total Debt Servicing Ratio framework is still in place, the premiums received by en bloc owners could help reduce the loan quantum, making the upgrading relatively easier.
CAUSE FOR CONCERN?
Besides the en bloc factors, buying momentum in the primary market could also come from an increasing number of eligible Housing Development Board upgraders who have just met the five-year Minimum Occupation Period for both the Build-to-Order and Design Build and Sell Scheme flats.
Based on our estimate, there are around 19,000 of them this year and a further 13,000 next year, a marked improvement from the previous years.
All these factors could point towards a more sustained recovery of the property market, when the supply completion is normalised to around 10,000 units per year for the next three years, half of what it used to be.
Property as a hard asset continues to be regarded as a safe investment choice, reinforced by inflation and often negative real interest rates.
Individual buyers and investors, particularly the beneficiaries of successful en bloc deals, are also expected to take the plunge and seek value buys in the near-term.
With buoyancy continuing into the next two years on the back of brighter economic prospects, developers’ hunger for land remains ravenous.
They are thus expected to participate keenly in both public and private land tenders and place bullish bids for well-located sites.
So is this cause for concern?
I am of the view that the current improved market sentiment just reflects the cyclical nature of the property market.
What goes down must come up at some point, and the converse is true.
As Mr Wong has rightly pointed out, the 9,300 new units from the enbloc sales will weigh on the market once the physical completion of these units hit the market a couple of years down the road.
The market will then correct itself if the underlying demand is weak should the domestic economy hit another rough patch.
Buyers and investors with no holding power will probably have to face the harsh reality when that day comes.
So while sentiments among developers and buyers may be positive in the short term, it remains to be seen how long this can last.
Adapted from : TODAY, 13 November 2017