By Mr. Propwise

New home sales by developers, excluding Executive Condominiums (ECs), fell by 32% Month-on-Month in May to 1,702 units. Including ECs, total units sold would have fallen by 23% Month-on-Month to 2,057 units.

Ironically, developers had become more aggressive in May as they launched 30% more units versus the previous month, for a total of 3,114 units (21% of which were ECs). This led to the sell-through ratio falling (the number of units sold as a percentage of the number of units launched) from April 2012’s 112% to 66%.

However, the plunge in May sales does not obviate the fact that new home sales in 2012 thus far have been very strong. Till May 2012 a total of 10,724 units (excluding ECs) have been sold, which is 54% higher than the same period last year and 67% of the total units sold in 2011.

Mass market sales still dominating

Despite falling by 8% Month-on-Month, volume in the Outside Central Region (OCR) of 1,560 units still made up 76% of total sales, which was higher than April’s 64%. Sales in the Rest of Central Region (RCR) and Core Central Region (CCR) fell by 54% and 30% to 362 and 135 units respectively.

It appears that the government’s multiple rounds of control measures and increased supply, combined with the weak global environment and volatile markets, is finally taking its toll on the property market. The effect is particularly pronounced on the mid-to-high and luxury end of the market, where the punitive 10% Additional Buyer’s Stamp Duty has kept foreign buyers away.

A lower likelihood for further policy action

Given the weakening volumes and likely prices, there is a lower probability of further draconian measures from the government as it appears that the effects of the previous policies are already coming through and the strong momentum of the market has been curtailed.

Furthermore, the uncertain global economic environment could become a further headwind for the market, removing the need for the government to take any further action.

If any additional policies are to follow, they are likely to be tweaks to existing policies, or “fine-tuning”. For example, the government might restrict the further build out of shoebox homes as developers try to mask ever higher per square foot prices with smaller unit sizes. It also appears to be seen if there is an actual end user or rental demand for these units. In other words, do people actually want to live in shoeboxes?

Will property prices crash?

Anecdotally, prices in all segments have been falling, but I do not believe a crash in property prices is imminent, as the fundamental reasons for the strong property market are still present:

First, the extremely low interest rate environment increases the affordability of property, and makes investing more attractive due to the positive rental yield spread. Essentially, the current low interest rates are penalizing savers while rewarding investors, and is incentivizing the purchase of any asset that is perceived to protect the buyer from the impact of inflation. Conversely, if interest rates were to rise, this would put stress on any buyers who have leveraged themselves to the maximum.

Second, the unemployment rate is still low, suggesting that the ability to finance a property is still healthy, and thus keeping the supply of forced sellers low. This would change if the global macroeconomic environment deteriorates – Singapore, being an open economy, would likely be seriously affected. Anecdotally, some sectors such as the financial industry are already talking about reducing headcount due to the poor market conditions, but we have not yet seen a large uptick in the unemployment rate.

Third, there appears to be sustained strong upgrader demand from local buyers. If we look at many of the mass market launches, they are located near to public housing areas and present a relatively affordable upgrade in terms of both design and facilities. Families already used to staying in the area naturally form a natural base of buyers who want to enjoy living in private housing.

Thus, unless there are significant changes in the above three factors, most probably caused by some kind of global crisis, we are not likely to see property prices plunge.

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