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Get Ready For The Upturn 

” I skate to where the puck is going to be, not where it has been”. – Wayne Gretzky

NEAR the peak of the property cycle in 2013, I recall walking into a showroom one Saturday morning to be greeted by an agent who excitedly proclaimed that purchasing a unit was just like buying vegetables. With Property Prices trending in only one direction – up – one shouldnt’t think too much. The bustle around me, reminiscent of a wet market, only added emphasis to her words.

Fast forward to the present, where private property prices have declined for 14 consecutive quarters. Unlit windows form the dark mosiacs of new developments, political gyrations are putting markets on edge, and the Fed is approaching its task of interest rate normalisation steadfastly, after a long period of stasis. Instead of exuberance, caution is the prevailing sentiments, it is important to keep a close watch on fundamentals. While Singapore’s property market has lost its lustre in recent years, the winds in the sails are shifting. If fundamentals are anything to go by, home prices are set to head for a recovery.

There are three key reasons behind this conviction. First, physical oversupply is ending. Home rental transactions are now experiencing an uptake.

Singapore’s property martket entered a situation of physical oversupply in the late 2013. Over 2014 to 2016, new units coming onto the market rose to around 50,000 per year, double the size of the median household formation. Accordingly, vacancy rates 3% from 5% at the end of 2012 to 8% at end 2016.

The situation is now changing. With developers moderating planned supply amid soft market conditions, the governments White Paper. Oversupply in the property by 2017, with vacancy rates edging down. Second, Macroprudential policies have entered into an easing cycle. Since February 2010, Singapore policymakers have implemented seven rounds of cooling measures, utilising a broad mix of credit- based and fiscal measures. Taken together, they were extremely effective in curbing speculative demand and price pressures in the property market.

Yet, the government’s intervention is not one-sided. Policymakers in Singapore have a strong track record of actively reviewing property legislation, and history shows that an excessive correction in prices is as zealously guarded against as a housing bubble.

During 1997, 2001 & 2008, policymakers implemented loosening measures after property prices declines ranging from 8% to 16%. Today, with private property prices already declining by close to 12%, we have entered and easing cycle in macroprudential policies. In March this year, the government made modest revisions to the seller stamp duty and total debt servicing ratio. These calibrated adjustments were not meant to have a significant impact on the property market, but sends a clear signal that the government stands ready to support the property market when necessary.

Finally, the Fed’s Monetary policy normalisation won’t have as big an impact on Singapore’s property market as feared. This almost decade-long period of ultra-low interest rates since the 2008 financial crisis was a key driver of the robust recovery in the housing market. With the US Economy charting a firm recovery, the federal Reserve has embarked on a tightening cycle. Members expect the feds funds to increase to 3% by 2019, from 1% currently. Given Singapore’s choice of the instrument, domestic interest rates such as higher rates ahead, demad from home buyers will be negatively impacted.

But how big will the impact be, really? Assuming the Sibor rises by 200 basis points to 3%. Monthly mortgage payments for an owner of a second home would rise to an average of $1,750 due to a 50 per cent loan to valuation ratio on a 30 year loan tenure.  In hindsight, it is clear that those who bought during the upsale period paid a high price for their purchase.

Today, however, we are in an inverse situation. As ice hockey great wayne Gretzky once explained, ” I skate to where the puck is going to be, not where it has been”. This is timely advice for property investors, and those who act boldly aid the widespread reticence this year may just end up swooping more than a few bargains. / Credits : ELI Lee /

By Eli Lee, Vice President and Senior Investment Analyst at OCBC Investment Research.



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