July saw a jump in property sales. That alone isn’t surprising, but this is: Home prices were actually reasonable. Singaporeans are returning to some semblance of sanity. And here I was thinking the average family home in 2020 would be advertised as “located under bridge for shelter, with attached longkang for shower”. There is hope after all; this may be the long awaited end-of-the-property-cycle. In this article, I look at the causes and implications:
Rising Sales in July
“Sales of private residential property, excluding executive condominiums, rose 41.7 per cent to 1,943 units in July from June, the highest since 2,497 units were sold in April, according to data released by the Urban Redevelopment Authority yesterday. Including ECs, home sales in July rose nearly 20 per cent to 2,067 units.” – Today Online, 16 Aug 2012
Home sales are up by 42% compared to June. This is only amazing to certain types of people. Like the ones who are stunned when you pull a coin out their ear, or show them the “detaching-my-thumb” trick.
June was one of the slowest months for property sales. Comparing July’s sales to June is like gauging an animal’s speed by racing it against three-legged turtles. It’s nothing to be impressed about.
What should get us excited is the growing price resistance, which I’ll discuss below.
Apart from simple contrast, other reasons for the surge include:
- Reasonably Priced Properties
- Market Correction in the CCR
- Hungry Ghost (Not Literally)
1. Reasonably Priced Properties
Hello reason, haven’t seen you around the property marker for a while.
Since 2010, most Singaporeans have been convinced their property value is “All the dollars in the country, plus one”. This illogical optimism resulted in market deviancies, like the HDB flats which sold for $900,000, and projects like Sky Habitat.
July’s sales rewarded developers who didn’t join the inflation-race. The majority of sales were in developments like Parc Olympia, priced at $874 per square foot. That Singaporeans opted for such developments is a sign of growing price resistance. Or is it?
I had property investor Charlie Sng break it down for me:
“In July, it seems buyers demonstrated a new unwillingness to go beyond a certain price. The top sellers were all priced under $1,000 per square foot. But this is just one month of sales. We need to wait and see if the trend continues.
Based on what I’m hearing from buyers, I’m a little inclined to believe that yes, we are encountering some price resistance.”
And that would mean?
“When there is price resistance, that normally signals that a price cycle has hit a peak. The price cannot go any higher, so sellers will gradually drop their price to a more reasonable level.”
2. Market Correction in the CCR
“Sales rose across the board in July, with the core central region seeing the steepest increase, with 253 units of new homes sold in the central area, up by 79 per cent on-month.” – Channel NewsAsia, 15 July 2012
This is a simple market correction, caused by the too-narrow price difference between central and non-central properties. In June, I wrote an article suggesting that this was caused by a simple market inefficiency: too much hype and focus on non-central properties.
With rising prices in non-central areas, CCR properties can only look more attractive. Between paying $1.6 million for a non-central condo, and $2 million for a condo near Orchard, it’s obvious the latter is a better deal. It was only a matter of time before buyers noticed this, and now we’re seeing the market correction.
Please don’t rush out and buy a central region property just because you’re reading this. By now, it would have been factored into the new prices.
3. Hungry Ghost (Not Literally)
Dying is inconvenient, and I advise against it. That said, the Hungry Ghost Month is a tough struggle for local property developers.
Charlie Sng tells me that:
“Usually the Hungry Ghost Festival is a very quiet month for property sales. So the developers will try their best to push out developments just before this time.
This is part of the reason why there’s such a spike in sales. Developers know that this month, there will be a lot of buyers who are eager to get their apartments before the Hungry Ghost Month.”
I also asked Melissa Eng, who rushed to get a new apartment because of it:
“For Chinese people, the Hungry Ghost Month is not the ideal time to buy a new home or to move house. I guess it has to do with deep-seated associations between one’s ancestors and the family home.
One reason for the festival is to celebrate our ancestors, and it doesn’t feel appropriate to be moving out at such a time.”
What Should You Do?
We’re starting to see signs of a bursting bubble. If you’re not in a rush, you’d better err on the side of caution: Wait till early 2013 before buying that expensive property.
But whatever your decision, it helps if you grab the best possible home loan. Less interest = higher capital gains. Whether you sell at a profit or (touch wood) a loss, the loan package is a deciding factor. Compare all the alternatives before you sign with a bank. You can also use free sites like MoneySmart.
And remember to follow us on Facebook for more property discussions.
What do you think the rise in sales means for the property market? Comment and let us know!
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