Housing market warning may fall on deaf ears
Singapore’s authorities are concerned the market could be setting itself up for a fall. A series of aggressive land deals by developers, against the backdrop of rising apartment sales and the first quarterly rise in private home prices for four years, was enough to prompt a recent warning from the nation’s central bank to lenders, home-buyers and real estate firms. There should be vigilance about risks “including the impact of rising interest rates, geopolitical developments, and excessive exuberance in the property market,” Ong Chong Tee, a deputy managing director of the central bank, the Monetary Authority of Singapore (MAS), said at the end of November. Persuading people to be more cautious could be a tough sell. Local and foreign investors have waited years for signs that prices are bottoming out, and developers want to make sure they have a pipeline of projects in the land-starved state. Real estate investors’ animal spirits have certainly been reviving. Singapore is looking relatively cheap compared with some other major property markets in the region — where prices have been surging almost without a pause in recent years. For example, housing prices, as of the third quarter, had risen 38 per cent in Hong Kong and 54 per cent in Sydney from four years earlier.
The property companies have been paying record sums to buy government land and existing apartment blocks, which they plan to knock down and re-build with developments that have more units.
A November report by consultancy Cushman & Wakefield estimated developers paid a 22 per cent average premium for the top five residential sites in 2017 over comparable sites in the past.
Authorities say recent sales could add 20,000 new private housing units, which will more than double the number of unsold units in the pipeline within the next 1-2 years.
But developers are hungry for land because their unsold inventory is close to record lows, nearly half the level in 2013, official data shows. And any physical oversupply is still some time away as apartments take four to five years to build.
The authorities’ fear is that buying fervour will run ahead of an anticipated increase in housing supply, which could create an imbalance and lead to price declines with resulting losses for those involved.
The Singapore government followed up by restricting the amount of land it will sell in the first half of next year to about the same level it made available in the second half of this year, versus some expectations for a hike.
While this risks helping to drive land prices up further it will at least reduce the chances of overbuilding. island-state’s property