Market outlook with covid-19
Covid-19 came unexpected and disrupting our way of lives for an unforeseeable future. I hope everyone is coping well amidst these difficult times.
The property market was relatively unaffected in the month of February and March, with strong sales volume both in the primary and secondary market. The M condominium (near Bugis MRT) that was launched in late February and saw a record sales of 70% of units sold on the first launch weekend. This was after Dorscon level was raised from yellow to Orange on 7th February 2020 (covid-19 timeline in Singapore).
We see a significant drop in the number of transactions in April & May, likely impacted by the implementation of Circuit Breaker. Under these measures, property’s show suites are closed with viewings only allowed digitally or virtual tour.
Property price index across all residential properties drop by 1.2 in 1Q2020 compared to the previous quarter.
Unlike the stock market, key researchers from major real estate companies are not speculating a steep drop in prices (source). A drop of 3 to 5% is expected.
Property cooling measures ensured grit in property owners
In the 2007-2008 Global Financial Crisis (GFC), we saw property prices drop by 24.9% over 4 consecutive quarters. GFC is primarily caused by over leveraging and poor credit assessment.
To prevent another GFC from happening, Monetary Authority Singapore (MAS) has come up with various cooling measures (see Figure 2) to restrict home loan criteria, and requiring a home buyers pay a substantial downpayment of 25% to 60%.
All these cooling measures also make the property market resilient, ensuring home owners have strong holding power to weather through economic recession.
Some of the Cooling Measures currently in place:
- LTV – Loan-to-value, property owners can only take a max of 75% loan on their first loan, requiring buyers to fork out as much as 25% down payment. For second property, only 45% loan is allowed.
- ABSD – currently foreigners are required to pay additional tax of 20% (on property price) to MAS
- TDSR / MSR – loan amount an individual can take is limited by his income and age, along with other debts obligations.
Expats’ confidence in Singapore’s Government
Unlike the SARS outbreak, expats (tenants) feel safer and are staying on in Singapore instead of going back to their home countries during this pandemic. This ensures continuing cash flow for our landlords, and directly prevent a sudden need for landlords to enter a fire sale.
Government’s Initiatives to significantly reduce Bank Foreclosure Sales or Fire Sales
Distress property owners facing cash flow issues can apply for loan deferment of up to 6 months. Assuming after 6 months of loan deferment the distressed property owner is still unable to pay his mortgage, the bank require at least 4 months of default to start the foreclosure process, which requires around 1 month for legal application. This effectively give distressed property owners up to 11 months buffer period before their properties going to Mortgagee Sales or Fire Sales.
In conclusion, it is very unlikely that property prices will dip substantially. Strict cooling measures ensured property buyers have substantial earning powers and are not over leveraging. Strict measures and efforts by Singapore’s Government to contain the pandemic is also globally recognized and ensures expats (tenants) stay on in Singapore. China is already showing signs of recovery (read more).