It’s probably an understatement, but 2020 was off to a rough start. The broader economic effects of COVID-19 have no doubt spilled over into the property sector, especially when coupled with the circuit breaker restrictions. The Singapore economy saw a 12.6% contraction in the second quarter, and according to the latest Monetary Authority of Singapore (MAS) survey, economists are expecting the Singaporean economy to shrink by 6% in 2020.
Fortunately, the progress into Phase 2 of Singapore’s reopening in June means that interested buyers are now able to view properties and show units – almost a prerequisite for making such a large commitment. Since the reopening, the question on everyone’s minds has been, will there be an unleashing of pent-up demand in the property market?
The latest data shows that new home sales in August reached an 11-month high, despite continued worries about employment and the economy. So, it seems there may be some cause for optimism.
But new home sales are just one part of the larger picture. What about the private resale condo market, which was most impacted by the circuit breaker restrictions? Drawing on data from PropertyGuru’s Property Market Index Q3 2020, coupled with on-the-ground insights from our real estate agent partners, we will give you a snapshot of the performance of the private resale market.
Whether you believe this is a good sign for the larger economic recovery, we leave up to you.
Or, read our insights on the property price and supply indices and the top performing districts and projects of the quarter.
Defining the Private Resale Market
Let’s begin with a quick definition. The private resale condo market in this case refers to the market for already completed non-HDB residential condos. This is not to be confused with sub-sales, which occur when the owner decides to sell the unit before it has received the Certificate of Statutory Completion. In a resale, there are only two parties – the buyer and the seller. In a sub-sale, there is a third party involved – the developer.
Now that we’ve cleared that up, let’s examine the latest data from the private resale condo market from two angles – during and after circuit breaker.
Falling Transaction Volumes During Circuit Breaker
Without the ability to conduct in-person viewings during the circuit breaker, it was not surprising that transactional volumes saw a sharp dip. The first quarter of the year saw 1,693 completed private resale condo transactions. In contrast, the second quarter (when the two-month circuit breaker took place) saw only 734 – a 57% decrease.
By month, May had the lowest number (150) likely because of the restrictions in April. April still saw a decent number of completed transactions (303) perhaps because viewings for many transactions had already happened in March.
This was supported by the real estate agents on the ground. Property agent Andrew Nair from ERA Realty Network shares, "The circuit breaker period was difficult for us. Most buyers were very hesitant to make a deposit on a property that they cannot ‘feel’. We basically had to put in twice the effort for half the usual results."
June’s numbers (281) fell in the middle, most likely because viewings resumed in Phase 2. Property agent Darren Ong from OrangeTee & Tie also observed that by then, many buyers had gotten more comfortable with transacting based on remote viewings alone: “Overall enquiry (in the resale market) did drop, but many were adapting well to virtual viewing and it did not stop the serious buyers from buying,” he says.
Strong Pricing Pressure Felt in the Private Resale Market
With falls in volumes came strong price pressures. Here, it is important to separate pricing data between resale condos and new launches. You see, in terms of the entire private condo market, data showed a 2.15% property price increase in the second quarter compared to the first. This can make it seem as if the private resale condo market still performed well during the circuit breaker.
Yet, our data shows that in the second quarter, resale transactions only made up 30% of the entire private condo market. Compare this to the average of the past four quarters, where resale transactions typically made up about 47% of all private condo transactions.
That is a stark difference. It also means that most of the price increases likely came from new launches. There are a couple possible reasons for this.
- It is easier to sell new launches without physical viewings since the units are still far from completion.
- Many new launches will only be completed in 2022 or 2023 – and buyers expect the economy to have recovered by then. Keep in mind also that because of the Progressive Payment Scheme, those buying private new launches will pay staggered loan instalments during construction. This would give them more financial room up till completion.
Further, there was also a massive increase in supply. The number of listings swelled from 110,710 in the first quarter to 162,069 in the second. This was a sharp 46% increase and was the highest supply figures since records began in the fourth quarter of 2016. However, uncompleted private residential supply only grew by a marginal 222 units in the second quarter. Hence, it looks like most of the supply increase stemmed from the resale market.
These two factors – that most of the price growth came from new launches, and the huge supply inflow from the resale market – point to strong pricing pressures on the private resale condo market.
But what about once the restrictions were eased?
Post-Circuit Breaker – Rebound in Transaction Volumes Evident
With physical viewings permitted starting June, the “pent up demand” narrative would indicate a strong rebound in transaction volumes starting July. The data supports this view, with 761 private resale condo transactions completed in July. This was a new record, as it was the highest monthly figure for the entire year.
Interviews with our agents further corroborated this narrative: “There were great improvements (in phase 2) as many of the buyers who previously did not dare to commit over virtual viewings actually arranged to have a serious viewing, and offered on the spot,” says Darren.
Andrew saw a similar spike in interest and demand. He recalls how a landed home in Serangoon Gardens (that he was trying to sell) initially received low, unsatisfactory offers before the circuit breaker, but on the day of closing (in phase 2), received three cheques well above the owner’s asking price.
August numbers were a little more modest, with 561 completed transactions. While a significant drop from July, it was still comparable to monthly figures from the first quarter. Of course, the dataset is somewhat limited – we are still only in the middle of September, after all. But preliminary figures indicate that there was a significant amount of pent up demand that positively affected the private resale condo market.
Beyond the “pent up demand” narrative, however, another possible reason for the rebound also emerged – the fear of missing out.
Buyers Worry – How Long Will Low Interest Rates Last?
Our interviews with the real estate agents operating on the ground revealed another potential reason behind the surge in demand post-circuit breaker – fear of missing out (FOMO). FOMO is one of the most powerful forces in financial markets, so it’s no surprise that it would also affect the property markets.
With mortgage rates currently standing at all-time lows – coupled with strong pricing pressure in the resale market – buyers with the means are rushing to “lock in” their opportunity. Many are still optimistic of the long-term case for Singapore’s real estate market and are trying to capitalise on the current situation.
Further, steady transaction volumes in the resale market, plus strong pricing for new launches, may have also made them fearful that resale prices would bounce back quickly – spurring them to immediate action.
Can the Rebound’s Momentum be Sustained?
Statistical data, bolstered by on-the-ground agent insights, indicate a clear rebound in the private resale condo market. The only question is whether this momentum can be sustained – or whether it will fizzle out as we approach the end of the year. Bear in mind that the government stimulus is slowly tapering off: the Jobs Support Scheme will end in October and the loan moratoriums will also halt at the end of December.
Even the best-trained economists can do no better than make educated guesses. We won’t even try. But what we can do is give you the data on what has happened and the possible reasons behind it. The rest we leave you to decide.
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This article was written by Ian Lee, an ex-banker turned financial writer who hopes to use his financial background and writing skills to help raise people’s financial literacy levels – a necessity in our modern world"