2020 has been an unprecedented year for many of us. While we are still in a recession, the stock markets have hit all-time highs, same for the local residential property market.
The property market is now filled with positive sentiment, fear of missing out (FOMO), greed and worry. Most property agents are taking advantage of the sentiment (obviously), to encourage buyers to take action. While property buyers usually want to front run the general market and buy before everyone else buys, this is definitely not the time to make rash decisions.
In this article, we will look at what happened in 2020, what to expect in 2021 and what are the key risks to consider.
A. Looking back at 2020
How did Property Prices perform?
In 2020, we ended the year up. HDB Resale Prices increased y-o-y by 4.8% (a relief to many). Private Residential Prices as a whole rose y-o-y by 2.2%.
On a q-o-q basis, prices of private residential properties in the Rest of Central (RCR) or City fringe outperformed the entire market, rising 4.8%. Price in the Central Region (CCR) or Prime area rose 3.3%. Prices in OCR rose by 1.7%.
How were the transaction volumes in 2020?
HDB transaction volumes
In 2020, HDB resale volume rose by 1,166 or about 5.3% from the previous year. HDB resale volume has generally been on an uptrend over the past 8 years.
The trend is likely to continue as more Singaporeans reach their retirement age and start to right size to cash out from their private properties.
Another group of HDB buyers will likely be Singaporeans who feel insecure about their jobs and decide to right size from a Private property to reduce monthly commitments.
HDB resale monthly volumes have remained stable over the past 7 months after 2 months of extremely low volumes due to the circuit breaker. When we look at a y-o-y basis, there is no significant increase in transaction volume. Therefore, it is obvious that the pent-up demand was to fill the “void” during the circuit breaker. The positive is that the pent-up demand created higher than expected demand for HDBs and therefore the return of Cash over valuation (COV) was seen.
Private Non-landed transaction volumes
In 2020, there was an increase of 449 private non-landed resale transactions (6% increase). The 7991 units transacted in 2020 is still much lower than the more than 10,000 units transacted in 2017, 2018 and the years prior to 2013 cooling measures.
Again, similar to the HDB market, the increase in transaction volumes in the private non-landed resale market has filled the transaction void from April to June 2020. To be certain if the transaction volumes continue to rise after the “pent-up” demand ends, we will have to watch the transaction volumes over the next three months (Jan to March 2021).
Total private non-landed resale transaction volume which includes new and resale increased by 1,546 or 8.5% in 2020 y-o-y. The increase in volume is mainly attributed to developer sales, as the resale transactions only increased by 449 in 2020.
The increase in volume of developer (new) sales could be due to the re-issue of option before URA put the brakes to it in September 2020. Again, to confirm if there will be follow through volume expansion, we will have to watch how the market plays out over the next 3 months, maybe 6 months for new properties.
The Landed market had the highest increase in transaction volumes amongst all property types. In 2020, landed transaction volume increased by 396 or 26%. This significant volume expansion can be attributed to the need of space for larger families. The circuit breaker where everyone had to stay home triggered the desire to move to a larger space.
What is not shown in the transaction volumes are the consumer preferences. In 2020, the trend has been towards brand new landed properties that is ready for occupancy and less than 10-year old properties. These properties require only some interior design and touch ups, which reduces the hassle of renovation when the industry has a lack of manpower.
Overall, the property market volumes show that the market is healthy and there is genuine demand. What will be interesting is to watch transaction volumes over the next 3 to 6 months. We will be sharing our updates in March and June.
B. What to expect in 2021?
In this section, we will be sharing our views for the property market in 2021. While we do our best to provide unbiased, factual and a balanced view, do note that we have no crystal ball, and the usual disclaimer applies. Do not take this as financial or investment advice.
1. Private Resale Property Prices in OCR to continue uptrend
Since 2019, I have shared with readers and clients that they should consider looking at resale properties. In some districts, private resale prices have started to move up. If the general market sentiment continues, expect resale properties in the OCR region to move higher as property buyers see value in the resale market and due to thinning supply of new launches in OCR.
Resale properties in CCR may continue to remain stagnant due to lower demand, while prices in RCR have already increased as seen in the Q4 2020 price performance (in image 1).
2. Potential mini En-Bloc Cycle restarting in 2021
The number of unsold building under construction (BUC) units in OCR region has reached a level where developers will need to start replenishing land bank. The 3-year average yearly BUC units sold in OCR is around 4,900 units. As of December 2020, there are only about 8,500 unsold BUC units in the OCR region, which could take less than 2 years to clear.
On the other hand, there are around 7,700 unsold BUC units in the CCR region, but the average yearly BUC units sold in CCR is around 780, which means it could take up to 10 years to clear.
Due to the cooling measures which greatly affects developers (Higher ABSD and Requirement to sell within 5 years), developers are unlikely to take huge risks in the current market climate unless the land price is very attractive.
Therefore, land plots with around 200 units or less may be ideal En-Bloc candidates because when re-developed, the developer may have 400 to 600 units which is likely easier to completely sell out compared to a mega-development with over 1,000 units.
We will share our views on where the next En-Bloc hotspot(s) could potentially be in another article. Naturally, clients and frequent readers (subscribers) will get the info before the article is published.
3. There is no need to “FOMO”
There was a real pent-up demand in 2H 2020, but average transaction volumes (as seen in our 2020 review) show that there is generally no significant increase in demand on a y-o-y basis (except in the landed market). Significant increase of demand still to be seen.
So, there is no need to fear, no need to be anxious, now is the time to watch and be cautiously optimistic.
4. Expect Higher Residential Unit Vacancies
Most MNCs in Singapore have benefited from wage support from the Government’s stimulus packages. However, as these supports start to taper, companies are also considering their options and job cuts are likely.
There were numerous news articles about expats being laid off in Singapore. There are market hear-say that some expats that were not laid off in 2020 may not have their job contracts renewed in 2021. Covid-19 has proven that most of us can work remotely, therefore there is no need to relocate talent unless absolutely necessary.
With more expats moving home, vacancies will be expected in the next 6 to 9 months. Higher vacancies could potentially trigger landlords to consider a sale, especially if vacancies are prolonged.
5. Property Market climate could change quickly in 2H 2021
The property market conditions could change quickly. As the mortgage moratoriums are tapered over the next 6 months, we will soon start to see the market’s true colour.
As Warren Buffet famously puts,
“You never know who’s swimming naked until the tide goes out”
– Warren Buffet
While the Singapore government has been on point by rolling out measures to prevent widespread defaults, these measures only provide temporary breathing room for those who have their cash flow affected due to Covid-19. If the crisis continues on for another 12 to 24 months, I doubt the government can continue to provide help forever.
Having said this, anytime is a good time to buy as long as the price is right. Always be on the lookout for deals, there are still undervalued gems and property clusters that have been lagging behind.
6. Asset Inflation is highly probable
With unlimited QE and money printing by central banks worldwide, Asset inflation remains highly probable.
If this happens, asset price movement for the past 10 years would just a preview of what is to come.
7. Properties in Districts that have been laggards may play catch up
Investors in Stocks would know that there is sector rotations and different sectors perform differently over the same time period. Likewise, properties in different districts perform differently. Let us take a look at the district performance over the past 10-years so you get an idea of what I mean.
Properties in districts that have been laggards may play catch up. Usually there are certain catalysts required for there to be a rotation into certain districts or even clusters (at a micro level). We will examine these in upcoming articles.
8. Owner-Occupier Dominant properties will remain resilient
Owner-occupant dominant properties will remain in high demand, while investment properties will continue to underperform. This also means this year could be a good time to start to monitor underperforming districts for possible trend reversal.
9. Property buyer’s focus on user experience will be more obvious
Consumer behaviour in a post Covid-19 world is focused on user experience (liveability). Most of us may think this is obvious. However, there are still many homebuyers asking if certain properties are good buy. Covid-19 has caused homebuyers to go for condos with a good spread of facilities to enjoy within their compound.
10. Foreign Buyers are unlikely to boost Prime Property sales for the next 2 to 3 years
While Singapore remains an attractive place for foreigners to call home and setup businesses. Many foreign buyers still find it a challenge to accept the Additional Buyer Stamp Duty (ABSD) of 20% or 24% (including Buyer Stamp Duty).
Foreign buyers who can afford properties in Singapore are usually fluid and can deploy capital in almost any asset class. If they are planning a move to Singapore, they may consider renting for 2 to 3 years before deciding if it is worth paying the premium (ABSD) to purchase a unit here.
C. Key Risks to keep in mind in 2021
1. Possible additional Property Cooling Measures
While we are still in a cooling cycle, there is a possibility of additional property cooling measures to keep property prices in line with income growth as there will likely be little to no income growth for 2020 and 2021.
2. Vaccine becomes non-effective
The current positive global sentiment is due to the successful approval of vaccine. If the vaccine proves to have adverse side-effects that causes a delay or pause in vaccine rollout, this could impact consumer sentiments and a return to weak economic expectations.
3. Reduction in fiscal stimulus
In 2020, the Singapore Government has boosted the economy with S$100bil of fiscal stimulus which includes wage subsidies, mortgage moratoriums and various other support schemes. This has prevented massive job losses and kept many Small and Medium Enterprise (SME) afloat.
It is expected that the Government will taper the stimulus in 2021. If the economy does not continue to rebound, a weak economy will not be positive for property prices.
4. Closing thoughts
As we start this new decade, be prepared for volatility, uncertainties and confusion. The noise in the market will get increasingly loud. As individual owners and investors, we have to ignore the market noises and follow the data and analysis.
In a property bull market, some properties will do well while some will not do well. Likewise, in a bear market, there will be some properties that still do well.
In the current uncertain investment climate we are in, property buyers should focus on quality and value. Such properties that stand the test of time will provide capital preservation.
Below are suggestions for different groups of buyers.
If you are a home buyer, looking for a home and need your own space, anytime is a good time to buy as it is a need.
If you are a home buyer, hoping to achieve a balance of finding that dream home and getting capital gain, now would be a good time to analyse which property clusters may suit your needs while having positive catalysts for price growth.
If you are an investor, looking to buy that second or third property, now would be a good time to look at lagging districts, investor dominant properties and even En-bloc candidates. These would be high risk investments and not for the faint hearted.
We hope that this article has provided good information for you to make an informed decision.
As always, if you would like to discuss further about this article or would like our opinions for your next property move, we will be happy to chat.