Disclaimer: This article was done because many of my friends, including myself are interested to find out what happened and what might happen. This article is by no means a recommendation to buy, sell or invest in any properties. If in doubt, please speak to your financial advisor and/or property consultant.
All eyes have been on the Wuhan Coronavirus (also known as 2019-nCoV) which authorities have described similar to SARS. Many of my clients have been asking me what the result of the Wuhan Virus outbreak could be, and how it might affect the Singapore Property Market. To analyse this, let us look at what happened during the SARS outbreak in 2003, some 17 years ago.
What happened during SARS?
The first case of SARS in Singapore was reported in March, 2003, for the month of March, tourist arrivals dropped by 15% and the number plunged 61% in April.
The Singapore Government advised the public to stay home, and I recall that the malls were very quiet because of this. Shopping mall owners and F&B owners were severely affected. During the recent Lunar New Year house visiting, conversations were about how bad the economy was during SARS and that nobody wanted to view houses then.
It did not take long for the Government to announce the SARS Relief Package worth S$230 million. The relief package was to support the Tourism, Transport and F&B industries, in light of the damage to the economy was already done.
How did it affect our economy?
In the aftermath of the 2003 SARS outbreak, Singapore’s GDP growth shrunk by 0.3% while unemployment rate spiked up to 4.8% in the third quarter.
How did HDB and Private property market react during SARS?
a. HDB
As seen from the graph, HDB markets did well during this period, HDB prices were resilient and even rose after the SARS outbreak was over.
b. Private Condo
Many of my relatives and friends who remember how it was like during the 2003 SARS outbreak would recall that mortgagee sales hit an all-time high. This was especially true for properties in prime districts. Singaporeans who were badly affected by the economic slowdown downgraded from Private Properties to HDB flats.
During the SARS outbreak, developer sales were massively affected and sales did not pick up until sometime after the outbreak was over.
Now that we know what happened to the property market during SARS, let us try to understand the current situation with the Wuhan virus.
What is likely to happen in this Wuhan Virus crisis?
Based on a best-case scenario, we can hope that the spread of the Wuhan Virus is contained by June 2020 or earlier, which is the same time period SARS took to be contained. At the moment, it seems that the spread of the virus outside of China remains low due to travel restrictions.
Even if the virus does not spread widely outside of China, the impact will be felt by the rest of the world as China plays a major role in Global Supply Chain and currently accounts for 17% of global GDP. What is positive is that scientists all over the world are developing vaccines and cures, with a breakthrough likely.
How will it affect our economy?
Hundreds of major manufacturers have had their links to global supply chain temporarily disrupted. Bosch GmbH, the world’s largest car-parts maker, had to shut two factories which employed 800 people in Wuhan, while Honda and Nissan have closed their facilities in Wuhan. Joining them are many global companies like Nike, Apple and Starbucks closing retail stores throughout China.
According to Warwick Mckibbin, a professor of economics at Australian National University who spoke to Bloomberg, the cost to the global economy is US$160 billion now, compared to US$40 billion during SARS. There will be a larger and potentially deeper risk to the global economy if things drag on. However, economists also say that US160 billion is a drop in the ocean compared to the value of global stock markets which currently stands at more than US$70 trillion.
Back here in Singapore, we will have the Budget 2020 and potential Wuhan Virus support package being announced soon. Time will tell what the impact will be to our economy. For now, it seems that the impact to Singapore’s economy is mainly towards Tourism, Transport and F&B.
How will the wuhan virus affect Singapore property market?
a. HDB
1.Demand to remain resilient
Demand for Resale HDBs will likely remain resilient because HDB is meant to be a home and not much an investment for many Singaporeans. Whether that is a virus outbreak or not, we will continue to have the need for a home. This is further supported by the latest HDB policies (Increased income ceiling and grants) which will attract more buyers to purchase HDB flats.
b. Private Condo
i) Home Buyer Clusters – this refer to places like Serangoon, Kovan, Bedok, Holland, etc. These are places where private property buyers are most likely to buy for their own stay.
1.Resale properties should see prices resilient
How resale properties do in 2020 very much depends if HDB upgraders can sell their HDBs for a fair price and upgrade to their dream private property. With the Wuhan Coronavirus causing some fear in the market, some resale property owners may be more realistic in their asking prices and be more open to negotiations. In my opinion, resale properties are where private property buyers can find value at, and should focus on finding a good deal here.
2.New properties may see some headwinds
Even before the Wuhan Virus, this segment has oversupply risks (more than 30,000 unsold new properties as of 2019) and high prices. This situation is likely to get worse if the Wuhan Virus is not contained soon. I personally would not count on developers reducing prices, and even if they did, there could be better buys elsewhere in the resale market.
Updated 6 Feb 2020: Ministry of Law Singapore announced that publicly listed housing developers with substantial connection to Singapore can apply for exemption from Qualifying Certiicate (QC), which is 8/16/24% tiered for the 1st/2nd/3rd year extention required to sell unsold units. Although most local developers can apply for an exemption of QC, there is still ABSD of up to 30% that developers must pay if they fail to sell all units within a specific timeline (currently 5 years from buying the land).
ii) Foreigner and investor clusters – this refers to places likeMarina Bay, Shenton Way, River Valley, etc.
1.Foreign buyer transactions are likely to fall further
Foreigners from Mainland China are the largest buyers of Singapore properties. The number of Mainland Chinese buyers has since been reducing from 541 (between Jan 2017 to June 2018) to 380 (between July 2018 to Dec 2019). With the restrictions and reduction of travel for China outbound and inbound flights, in addition to uncertainties for Chinese buyers (most of them are business owners), foreign buyers from China is likely to be drastically reduced.
2.Resale properties may see prices soften
With the reduction of foreign property buyers especially from China, it is likely that prime property prices will soften. There is also a likelihood of increased numbers of fire sale (in a worst-case scenario), if the global economy does worsen.
3.New properties will likely see headwinds
As discussed in my previous articles, there are various reasons for this, one reason is new property prices are now extremely high because the New property to old property price gap is at an all-time high, with some districts having a gap of 50% or higher. It is common knowledge in the markets that the majority of high-end new properties are being bought by Mainland Chinese buyers.
It does not help that there will be a significant supply of around 20 new prime residential projects with an estimated 4,200 units to be launched in 2020. If foreign buyers continue to fall, some developers might find it very challenging to sell units.
The only solution for this for the government to ease some of the cooling measures, which seems unlikely at the moment.
Conclusion
In my honest opinion, it is still too early to determine the actual scale of impact, but I will be updating this blog along the way as the situation progress.
The Wuhan Coronavirus outbreak could be a reason for central banks around the world to continue accommodative monetary policies (keeping interest rates low) and flood the markets with liquidity. Governments of countries affected are likely to stimulate their domestic economy. What we should consider is how can we benefit from this crisis?
For aspiring property buyers, the private resale property market is a good place to look for deals. If the situation worsens and is similar to SARS, there will likely be good deals in the market (my family benefited from this) because private property buyers held back, there were only 1 or 2 viewing in a month, therefore owners were more willing to negotiate and were reasonable with their asking prices. Some properties that have high demand may see prices remain resilient.
HDB owners who wish to upgrade to a private property would likely be the biggest beneficiary of this crisis. If HDB prices remain resilient, while private property prices soften, it is the perfect opportunity to move forward with your upgrading plans. The same may also be true for Condo owners who wish to move to a Landed property.
Final word of caution, do not rush into any purchase, ensure that you have done your research so that you can make a well-informed decision. Buying a Resale property can be better than a New Launch Property in the current market cycle.