Too early to roll back cooling measures

Cut in state land sales, Fed stance on low interest rates could mean private home prices more likely to rise

THE Ministry of National Development's decision to cut state land sales for private housing development for the first half of next year reflects official caution about an oversupply building up. Not only has MND chopped supply on both the confirmed and reserve lists but it will be pushing out mostly not-so-hot sites on the confirmed list to prevent benchmark bids from being set and hence pushing up prices of other sites.

The industry is bracing itself for record numbers of private housing completions. And with the introduction of the total debt servicing ratio (TDSR) framework in late June, developers' private housing sales have, on the whole, slowed. CBRE estimates that 2013 will end with around 15,000 units (excluding executive condominiums) sold - down from last year's record of 22,197. Next year, the figure is likely to shrink further to 10,000-12,000.

With sales down, some developers have started trimming prices. The goal is to launch projects as soon as possible - on fears of worsening sentiment as a housing glut builds up. In the public housing market too, prices of HDB resale flats have begun to soften. If the trend continues, that will clip HDB flat owners' capacity to upgrade to a mass-market private condo.

Against this backdrop, there have been suggestions from some quarters that the government may begin to roll back some of the property cooling measures in 2014. However, that may be overlooking some factors that could potentially spark a resurgence in private residential property prices.

Firstly, there is no sign that the price of land - the most vital factor of production in property development - is coming down. New market entrants and even some local players hungry for replacement land have been stoking up land bids at government land sale (GLS) tenders. If developers pay higher land prices, they will obviously do their best to sell the projects at higher prices.

No doubt, MND will be launching mostly "inferior" sites on the confirmed list of the first-half 2014 GLS Programme, but there are many plum ones on the reserve list that may be triggered and which could result in benchmark prices being set at tender.

Savills Singapore research head Alan Cheong highlights that three projects that have done well post-TDSR due to relatively attractive pricing - The Inflora in Upper Changi, The Tembusu in Tampines Road, and Duo in Ophir Road - are coming up on sites that have low historical land cost. These will be exceptions.

Most developers have paid top dollar for mass-market condo sites at state tenders and would be loath to price projects below market as this could entail a loss.

Another reason prices will be sticky going south is that developers mostly have strong financial reserves. Mr Cheong argues that by now, they have probably realised that they can afford to hold prices of mass-market and mid-tier projects, and still finish developing and selling them out within the five-year timeline from the date of award of the site (to qualify for upfront remission of the 15 per cent additional buyer's stamp duty or ABSD).

"If project sales simmer down - after the initial launch hype - to a rate of 2-2.5 per cent of the number of units in a development per month, developers will still be able to sell out their inventory over a reasonable time without resorting to price cuts," Mr Cheong said.

He based his prognosis on monthly sales patterns of projects launched following the introduction of TDSR.

In any case, developers may be constrained from slashing prices because of covenants stipulated by lenders in their project financing agreements.

As for the HDB market, the government has already stated that it will begin tapering supply of new build-to-order (BTO) flats from next year. That should mitigate a potential glut and downward price pressure on the HDB resale market. In turn, this should provide stable support for mass-market private condos.

On the demand side, sentiment towards real estate is likely to improve following the United States Federal Reserve's recent pronouncement that short-term interest rates will stay near-zero for a longer time.

Taking into account all these factors, along with the cut in the H1 2014 GLS Programme, one could argue that there is a higher likelihood of prices going up than plunging. Of course, there may be some unknown factor(s) that could rock confidence in Singapore's property market. If that happens, price cuts may no longer be met with buyers quickly mopping up supply.

For now, however, it may be a little early to roll back the property cooling measures.

The Business Times - December 27, 2013 
By: Kalpana Rashiwala

Source: STProperty

2014 likely quiet for HDB resale market

The HDB resale market is expected to slow down next year on the back of the government’s measures on permanent residents (PRs), according to analysts quoted in a media report.

Newly-minted PRs now have to wait three years before they can purchase a resale flat. There was no such requirement previous to when this regulation came into effect on 27 August.

The housing board revealed that PR households purchased an average of 323 units per month during the first eight months of the year. However, this fell to an average of 176 units per month since the introduction of the new ruling.

“Based on these preliminary figures from the HDB, the drop in demand from PRs will reduce the (overall) demand for resale flats by about 10 percent in 2014,” said Nicholas Mak, Research Head at SLP International Property Consultants.

Moreover, first-time buyers can easily purchase new flats currently, while the government is expected to raise the quota of new flats for second-timers.

This means that fewer buyers are expected to turn to the resale market.

While next year’s figure will likely be similar to 2013 – which saw “one of the lowest in years” with estimates at around 17,200 to 18,500 compared to more than 24,000 to 37,000 in annual resale volumes over the last five years – activity is expected to pick up in the second half of the year as buyers get drawn back to the market by lower prices.

The real estate agency is also “quietly optimistic that resale HDB volumes will pick up in 2014” as HDB slows down the launch of Build-to-Order (BTO) flats.

As such, resale volumes will likely be “a shade better than this year” at over 20,000 but less than the 25,000 or so recorded in 2011 and 2012.

Source: Dec 26, 2013 - PropertyGuru.com.sg

Refining the Executive Condominium Housing Scheme

The Government will implement three measures for Executive Condominium (EC) developments to bring the terms for ECs closer to that for public housing, and help support a stable and sustainable EC market. This follows a review by MND on the EC Housing Scheme, taking into account feedback from the Our Singapore Conversation on Housing. 

I. Reduce EC Cancellation Fees 
2   First, we will reduce the cancellation fees for ECs from 20% to 5% of the purchase price. This will relieve the financial burden of buyers who have to cancel their EC bookings after signing the Sale & Purchase Agreement. The new cancellation fee will be applied to EC land sales which are launched on or after 9 Dec 2013, including those where the tenders have not closed. 

3   The cancellation fee for ECs is currently set at 20% of the purchase price, similar to those for private housing. However, unlike buyers of private housing, buyers of EC units cannot sub-sell their units if they cannot complete their purchase, and have to pay the cancellation fee. This has especially imposed significant financial burden on young couples who subsequently are not able to proceed with their marriage and hence the EC purchase. 

4   We will therefore align the cancellation fees for EC units with that for HDB Build-to-Order (BTO) flats, and reduce them from 20% to 5% of the purchase price. 

II. Resale Levy for Second-Timer Applicants 
5   Second, we will now require second-timer applicants who buy EC units directly from property developers to pay a resale levy, similar to second-timer applicants who buy BTO flats. The new requirement will be applied to EC land sales which are launched on or after 9 Dec 2013, including those where the tenders have not closed. 

6   Currently, second-timer applicants who buy EC units directly from property developers benefit from the lower EC prices arising from the initial eligibility and ownership restrictions imposed on EC purchases. However, they do not need to pay a resale levy. The alignment of treatment with second-timer applicants who buy BTO flats will ensure greater parity. 

III. Revision of Mortgage Loan Terms 
7   Third, the Monetary Authority of Singapore (MAS) will cap the Mortgage Servicing Ratio (MSR) for housing loans granted by financial institutions for EC units bought directly from property developers at 30% of a borrower’s gross monthly income. This is in line with earlier measures introduced by the HDB and MAS to encourage financial prudence among buyers of public housing. It discourages EC buyers from over-stretching their finances and supports an affordable and sustainable EC market. 

8   The 30% MSR cap will apply to EC purchases where the Option to Purchase is granted on or after 10 Dec 2013.1
Enquiries 
9   For further enquiries on any of the above measures, the public can contact the HDB Sales Customer Service Line: 1800-866-3066. 

Issued by: Ministry of National Development
Date 9 Dec 2013 

Source: MND

Sluggish home loan growth as property sales weaken

Home loan growth is tipped to slow further this quarter amid slumping residential property sales. 

Analysts said the loan growth slowdown is to be expected in the wake of tough loan curbs imposed in June under a total debt servicing ratio (TDSR) framework. The TDSR stops banks from issuing a loan that pushes a borrower's debt repayments above 60% of his gross monthly income. 

The credit profile of housing loans had improved, and cited a smaller share of new housing loans with a loan-to-value ratio above 70%. This ratio is the proportion of a home's value that a buyer can borrow. Experts attribute the improved loan statistics as a reflection of the effectiveness of the TDSR in limiting debt exposure. Furthermore, loan growth could moderate even further this quarter owing to declining sales volumes.

Experts expect overall home sales volumes to fall about 30% this year from last year. While the overall price index is expected to rise by up to 2% this year from last year, the index may fall by 5% to 10% next year. 

A statement from MAS stated that momentum has varied across different market segments. It noted that while private home prices in suburban areas have climbed 2.5% very quarter on average this year, prices on the city fringe and in the city centre have started to show some weakness, turning negative in the third quarter. While suburban private home prices will fall at some point, any drop would probably be seen only around mid-next year as developers need time to adjust their prices, unit layouts and marketing strategies.

Source: Dec 05, 2013 - By: iProperty.com Singapore

Slowing BTO supply won't affect resale flat market

After three years of ramped-up construction, reducing the supply of Build-to-Order (BTO) flats makes perfect sense considering reduced buyer demand. But the move will not affect resale prices, revealed media reports quoting analysts.

This is because given that pent-up demand for new flats has now been addressed, “the profile of buyers going for resale flats and BTO flats is generally different”, said R'ST Research Director Ong Kah Seng.

Analysts were responding to comments made by National Development Minister Khaw Boon Wan that the housing board will taper off its “massive construction programme” from 2014.

The three years of ramped-up BTO supply means that first-time buyers can purchase a new flat instead of a resale flat. This exercise along with the introduction of various cooling measures has helped ease demand for resale flats. As a result, cash premiums and resale prices have fallen.

Meanwhile, analysts doubt that the tapering will move buyers back to the resale market.

This is because tapering is the result of reduced buyer demand, Ong said. The excess demand, which dates back to the period of severe shortage of more affordable flats, has already been satisfied.

In addition, sellers of resale flats are not expected to raise prices since the cooling measures have curbed the ability of buyers to purchase pricey flats.

Chris Koh, Director of property consultancy Chris International, noted that some demand may return to the resale market, but only if supply falls such that it becomes difficult to acquire a BTO flat.

But he does not expect this to happen and is maintaining his earlier forecast that resale prices will drop five to 10 percent in 2014.

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg

Source: Dec 5, 2013 - PropertyGuru.com.sg

More flats sold below valuation

As stricter home loan rules weaken demand, the volume of HDB flats being sold below their appraisal value has also increased, media reports said.

In October, 105 flats were sold below valuation, or seven percent of the total volume, based on data from the housing board. This is significantly down from the average 0.3 percent for every month of the first half of the year.

This also implies that the number of flats sold below valuation increased fourfold in October alone compared to the entire period of January to June, when an average of five such transactions were recorded each month.

As such, sellers have been forced to adjust their expectations.

For instance, Assistant Manager Raymond Koh asked for cash-over-valuation (COV) of S$20,000 for his second floor five-room flat in Punggol earlier this year. When he found no buyers, Koh lowered his COV to “S$10,000, then S$5,000, then zero”, he said. After which, “I started going negative”.

Currently his nine-year-old flat is priced S$20,000 below valuation. “Any lower and I might as well continue living here,” said Koh, who wants to upgrade to an executive apartment or condominium in Sengkang, close to his preferred school for his five-year-old son.

Meanwhile, National Development Minister Khaw Boon Wan revealed that the government will begin tapering off its “massive construction programme from 2014”.

“We will do so in a measured way, to allow the market to gradually adjust, just like what we had done to cool the property market earlier,” he said in his blog on Monday.

He noted that three years of increased supply helped to restore balance in the housing market, as indicated by the lower COV trend in the HDB resale market and the decline in average Build-to-Order (BTO) application rates – from 5.3 in 2010 to 2.9 this year.

The November BTO and balance flats exercise saw the release of 8,952 flats in a single launch, making it the largest in HDB’s history.

“With this, we have delivered over 25,000 BTO flats this year and over 77,000 BTO flats in the last three years,” said Mr Khaw.

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg

Source: Dec 5, 2013 - PropertyGuru.com.sg

MAS says banks need to monitor exposure to cross-border lending

For the household sector, housing loans were a potential risk, the central bank said.

"Housing loans account for about three-quarters of total household liabilities, and could be a significant source of risk for households. The credit profile for certain housing loans was a source of concern," it said.

The household debt-to-income ratio has risen from a low of 1.9 times in 2008 during the Lehman crisis to 2.1 times in 2012, and household debt has grown more quickly than household assets since Q2 2011, MAS noted.

The central bank said close monitoring of Singapore's property market is needed, even after a series of policy steps led to a moderation in property market transactions and housing loan growth.

"However, developer bids for land parcels remain firm. The current uncertain environment warrants continued caution and vigilance."

- See more at: http://business.asiaone.com/news/mas-says-banks-need-monitor-exposure-cross-border-lending

Reuters

Tuesday, Dec 03, 2013

Source: AsiaOne