Is the real estate market finally slowing down?

Sep 17, 2013 - By: Getty Goh

Many consultants are of the view that the Singapore property market is due for a slow down. However, some consumers, especially property owners, think otherwise.

Understandably, it is currently hard to get a consensus on where the real estate market is heading due to the numerous mixed signals. On one hand, there are anecdotal evidences that the residential property market is losing steam as sales volume has dropped quite significantly.

On the other hand, there is still news of property developers hotly contesting for land tenders. On top of that, the URA Private Property Price Index (PPPI) for 2013Q2 inched up by 1% to reach a record of 215.4 (see Figure 1).

Figure 1: URA PPPI from 1975Q1 to 2013Q2


Source: URA and Ascendant Assets Pte Ltd

To a layman observer, all these seem to indicate that the real estate market is still vibrant despite the introduction of numerous cooling measures. However, what many consumers do not realise is that the URA PPPI reported in the media is actually made up of sub-indexes derived from the various residential sub-sectors (i.e. terrace houses, semi-detached, apartments, condominiums, etc.).

Unbeknownst to them, although the headline URA index (that represents the overall Singapore market) has been inching upwards, the picture for the sub-sectors looks quite different.

Figures 2, 3 and 4 show URA PPPI for Leasehold Terrace Houses, Freehold Condominiums and Leasehold Apartments respectively. If you carefully observe the last 6 to 8 data points, you will notice that prices for these sub-sectors have started to come down.

Figure 2: URA PPPI for Leasehold Terrace Houses (2013Q2)

Source: URA and Ascendant Assets Pte Ltd

Figure 3: URA PPPI for Freehold Condominiums (2013Q2)

Source: URA and Ascendant Assets Pte Ltd

Figure 4: URA PPPI for Leasehold Apartments (2013Q2)

Source: URA and Ascendant Assets Pte Ltd

From this simple analysis, we can see that contrary to what some consumers think, weakness in the real estate market has started to surface.

As the effects of Total Debt Serving Ratio (TDSR) kick in and consumers find it harder to get loans for their second (or more) property, potential buyers will eventually dry up. When that happens, sellers who are keen to offload their units will start to lower their asking prices.

Projecting this trend forward, if the situation remains unchanged, it will just be a matter of time for the much anticipated market slowdown to finally occur and for the overall URA PPPI to drop.