Private home prices went nuts in February, rising by 29%. Damn, that’s higher than my O-Level results. Which paper? All of them combined. And I cheated. But anyway, property investors shouldn’t be dancing for joy just yet; this may be a momentary surge. Even worse, it could lead to even more cooling measures. HDB probably has whole basements of liquid nitro, and they’re just waiting for the prices to twitch. Reasons for the surge are in this article:
1. Home Loan Rates Were Low in February
DBS was on a blitz in February. They were offering home loan rates as low as 0.65%, which may be the lowest we’ll see all year.
For foreigners, the low rates were a godsend. They were reeling from the additional buyers stamp duty (ABSD) of 10%, and many had switched to renting. But the low interest rates somewhat compensated for this; along with the rise in rental prices, it enticed some foreigners to buy, stamp duty or no.
If you’re looking to get those low rates though, you’re too late. DBS is no longer loaning money like a rogue trader with a plane ticket, so we may see a return to normality in the coming months.
2. Popularity of Executive Condominiums
The January – February period saw the launch of several new (ECs) Executive Condos. Because of their greater resale value and prestige, ECs are the unit of choice amongst locals. They’re a nice middle-ground between condominiums and flats, and very affordable to the middle-class demographic.
According to Today online:
“257 units of ECs have been sold at Twin Waterfalls, 187 units at The Tampines Trilliant and 186 units at The Rainforest.”
3. Under Supply
Oh, this is a big revelation. But in case you just got back from Mars, there’s a housing crunch going on. And with the general lack of housing, some buyers probably decided: “Stuff this, I’ll buy private and be done with it.”
It might be an expensive and dangerous plunge, but look at the factors: Resale and rental prices aren’t economical anyway (not right now). The supply of new flats is tight. And as mentioned in point 1, interest rates were very low. All the right enticements were present in February.
4. Recovery in Global Economy
With Greece accepting the bailout, and America showing signs of recovery, everyone’s feeling optimistic. Along with improvements in the stock market, private property developed an air of affordability. HDB upgraders probably saw February as their cue to move, and there were plenty of units available (see point 2).
If the global economy continues to improve, this sentiment will only grow strong stronger. But if you’re a buyer, I suggest you repress any warm, rosy feelings. We’re far from the stability we had in the last decade, and property decisions shouldn’t be based on how well business is going at the moment.
5. Strong Latent Demand
A property obsession is more Asian than rice. Some 87% of Singaporeans own their homes, and we’re raised to equate property with family and wealth.
Cultural sentiment aside, property remains one of the safest investments in Singapore. Because we’re land scarce, property assets will beat paper stocks any time. For the majority of stock traders, the end goal is to raise enough capital to become property investors. Because of this, the demand for property will always exceed the supply. The only factor is purchasing power, which was present due to the low interest rates.
Will It Carry On?
Our guess? Probably not, because the low interest rates were the main cause of the surge. Unless some other bank follows in DBS’ footsteps, we should be less optimistic for March.
Also, we’re not seeing a huge number of ECs launching any time soon, and the out-of-central (OCR) private properties that Singaporeans love have been snapped up.
Finally, the government’s been launching one cooling measure after another. Since they’ve already caused a (positive) disruption with the ABSD, they have no reason not to follow up. If prices start matching the rise in sales, we can expect housing authorities to break out the hoses and start playing fireman again.
Still, if you’re feeling optimistic, you can join the buying crowd. But first, make sure you do your homework and get up to date with the latest home loan packages in Singapore with MoneySmart’s free and easy-to-use Home Loan Wizard!
Do you think the surge will continue? Comment and tell us why!
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