Taking a longer-term view

luxuryasiahome ⋅ September 2, 2011  

It has been more than half a year since the last round of the Government’s residential property cooling measures were implemented in January and, even as buying interest in private homes seems to have been moderated, the debt crises in Europe and the United States are creating new concerns.

However, the outlook for Singapore’s private residential property must also be looked at beyond this financial crisis.

In the face of the economic challenges in the Western economies, private home buyers in Singapore are expected to be cautious. The turbulent financial markets have also hit numerous stakeholders, with fewer definite opportunities for wealth accumulation through the stock market. The financial market has led property prices in the past 15 years and, if the stock market turmoil does not stabilise within a reasonable time-frame, this can potentially affect private home buying sentiment.

Together with the recent implementation of the new public housing rules in the form of higher income eligibility for Build-to-Order flats and Executive Condominiums, this is expected to dampen optimism and expectations of consistent price increases, especially for mass market private condominiums where prices are already in excess of the affordability of many would-be buyers.

Indeed, the uncertain economic conditions and lacklustre financial markets are expected to encourage some buyers to opt for public housing or ECs in lieu of private homes. This reflects increasing cautiousness and price sensitivity among buyers, which on a brighter note, is key to sustainable home buying decisions.

The public housing market is expected to be fairly stable or may even benefit in this period, but the outlook for the private market is cautious though not pessimistic. While the turmoil in the US and Europe is cause for concern, there are ample opportunities for Asia and Singapore as a safer place to invest in.

The Government is consistently monitoring the residential market and, while the current global economic conditions may mean that optimism will be kept in check, new rules and incremental policy fine-tuning to achieve sustainability may still be necessary.

Home buyers are divided into those who welcome measures – those with a long-term view and those who find homes less affordable – and those who fear new measures in case they come with more restrictions on ownership, re-selling and financing.

There is ample home supply coming in the next few years but whether this translates into an oversupply can only be ascertained by how well this can be absorbed, hinging on expected economic conditions, buyers behaviour and also how accurately historical averages can paint a future picture.

Structurally, the residential property market is evolving and home buying intentions can be very different from the past.

The current economic challenges from US and Europe should not be the only factor in overall home buying decision. Firstly, the effects on Singapore and Asia remain unclear. On the plus side, there are opportunities for funds to be diverted to the Asia-Pacific region, including Singapore, as investors look for a stable platform to grow their investments.

Singapore has also developed significantly over the recent years with the completion and on-going development of various lifestyle clusters, including the integrated resorts.

These will support opportunities for investors, notwithstanding rental prospects can in the short term be affected by the gloomy world economic outlook as fewer expatriates are relocated. There may, therefore, be sufficient takers for the private homes even if there is ample supply and amid subdued economic conditions.

Perhaps, prospective buyers should use this “window period” to do their homework, critically evaluate choices and buy at opportune timing. Historically, the opportunist is usually the quickest to react to a price fall, as sufficient pent-up demand may create spontaneous property upward re-pricing.

Home buyers should also look for micro market opportunities, i.e. the specific property’s attractive characteristics, e.g. with the development of new infrastructure and amenities.

But it also takes courage for individuals to buy into the success of such district rejuvenation plans, as it is not certain that prices will appreciate and also increasingly, there are MRT stations in every corner of Singapore.

That said, it means potential home buyers should take a longer-term view, given as well that private residential purchases will be subject to a longer holding period for the seller’s stamp duty under the January cooling measures.

By Ong Kah Seng – senior manager of research (Asia-Pacific) at Cushman & Wakefield.