Singapore’s jump in private home sales last month was only a temporary reprieve for developers as the government’s cooling measures take root and mortgage rates begin to rise.
The city’s housing sales climbed 54 percent to 742 in August from July, when they fell to 482, the lowest in almost four years, according to government data. With nine rounds of cooling measures since mid-2009, the increase will be short-lived, according to Mizuho Bank Ltd. and UOB Kay Hian Pte. Monthly sales averaged about 1,700 units in the first six months of the year.
“There have been successive rounds of measures coming through and with mortgage rates also beginning to move up, you will find that buyers are becoming more circumspect and wondering if these are the right entry levels,” said Vishnu Varathan, a Singapore-based economist at Mizuho, who forecast home prices to fall 10 percent to 15 percent by 2016.
Singapore unveiled new rules in June governing how financial institutions grant property loans to individuals. Record home prices amid low interest rates raised concerns of a housing bubble and prompted the government to widen a more than four-year campaign to curb speculation in Asia’s second-most expensive housing market, according to a Knight Frank LLP and Citi Private Bank report.
The new loan framework requires that lenders take a borrower’s debt into consideration when granting property loans, the Monetary Authority of Singapore said June 28. Home loans should not exceed a total debt-servicing ratio of 60 percent and those that do will be considered imprudent, it said.
“Normalizing interest rates” will pose significant financial risks to individual borrowers and the economy, the Ministry of National Development said on its website in response to questions in parliament yesterday. The property curbs are needed to avoid a “major price correction,” it said.
Singapore’s home lending rates have risen about 0.5 percentage points in the past year, according to Keff Hui, a director at Mortgage Supermart Singapore, a mortgage broker.
Executive condominiums made up almost half of the homes sold in August, an unprecedented level, according to SLP International Property Consultants. Including these apartments, offered with some restrictions such as a monthly household income cap of S$12,000 ($9,523), August sales were 1,468, according to the government data.
“The bulk of the sales in August was on the executive condo side, not on private sales, which shows demand for private home sales is still low,” said Vikrant Pandey, a Singapore-based analyst at UOB Kay Hian, who expects the number of residential properties sold to drop 30 percent in the next 12 months and as much as a 10 percent decline in prices. “The measures are having their impact.”
Among the developers that began sales of projects in August was Wing Tai Holdings Ltd., which marketed its condominium in the Tampines area, an eastern suburb of Singapore. It sold 218 units of 337 marketed last month, according to the data. RV Residences, offered by Allgreen Properties Ltd., in the central district sold 39 of 83 units marketed, the data showed.
Earlier measures haven’t damped housing values. The private residential price index rose 1 percent to a record 215.4 points in the second quarter, extending a 0.6 percent increase in the first three months, according to data from the Urban Redevelopment Authority on July 26. Suburban prices climbed 3.8 percent in the June quarter, accelerating from a 1.4 percent gain in the previous three months, the data showed.
“Developers’ sales are expected to improve in the coming months, but at a more gradual pace,” said Nicholas Mak, an executive director at SLP in Singapore. “For the whole of 2013, developers’ private home sales volume is projected to be at a more sustainable level ranging between 14,000 and 16,000.”
To curb speculation, the government also tightened loan-to-value limits for buyers seeking a second mortgage, referring to the amount they are allowed to borrow relative to the value of their properties. The cash down-payment will rise to 25 percent from 10 percent starting from the second loan, it said.
CapitaLand Ltd. and City Developments Ltd., Singapore’s two biggest publicly traded developers, said in the past two months they expect “headwinds” in the city’s property market because of the government curbs.
CapitaLand shares were unchanged at S$3.14 at the close of trading in Singapore, while City Developments declined 1 percent to S$10.44.
CapitaLand said July 25 it expects prices and sales of residential properties to moderate. It started preliminary marketing for its Sky Vue project in the central Singapore suburb of Bishan over the weekend.
“In response to market demands, Sky Vue offers slightly more compact units,” it said in an e-mailed response to queries yesterday. “Moving forward, we will continue to adjust our products to cater to changing market needs.”
Regulations on land ownership are also deterring City Developments. Buying land in Singapore at current high prices would be “suicidal” given the government’s requirement that new homes must be sold within two years of completion, Chairman Kwek Leng Beng said on Aug. 6.
Developers of land for high-end residential projects are subject to conditions of a so-called qualifying certificate, which includes the two-year deadline, according to the city’s rules. Developers can apply for an extension for a fee.
“Developers have been trying to offer discounts, but with high land prices, and additional buyers’ stamp duty and higher mortgage rates, they will not be able to absorb it beyond a point,” Mizhuho’s Varathan said. “Supply is a very real thing, so seeing spanking new buildings coming up with no real demand will see some price correction and some pain for developers as well.”