Wednesday, February 22, 2012

Singapore Property News Update Feb 2012

Banks cut lending to shoe-box buyers
Banks may be taking the property price fall scenario in 2012 seriously; according to the PropertyGuru at least one bank in Singapore is now declining all finance applications for properties under 500 sq ft in size, shoe-box units, in Singapore:

"An employee of CIMB who declined to be named told PropertyGuru that financing for shoe-box units is simply no longer being offered. "It's just too risky right now" he said, adding that he understands most banks are not even considering applications from individuals with a substantial deposit and perfect credit history."
Source : Banks cut lending to shoe-box buyers

Property analysts say that the buyers of these units are usually investors and unlike owner-occupiers they are more likely to default. The problem, in my opinion, is that these units are bought by investors with very unrealistic rent prospects. Although I believe there will be good rental demand for these units, current high rental expectations are high for the long term. When all those tens of thousands of new properties are completed by 2015, there will be a lot of option to choose from and current high asking prices for shoe-box units will be history.

Resale HDB flat prices are set to fall 3 – 5% in 2012
2011 saw the release of 25,000+ new HDB flats and 2012 will see the same number of new HDB flat releases. This is the highest number in a year in the last 15 years and 3 times higher than the average of 8,000 units per year in the previous decade. Although these units will not enter the HDB resale market in the next 7-8 years (2-3 years to build + 5 years of Minimium Occupancy Period) and ease the severe supply crunch, they will remove a significant demand from the market. The income ceiling raise from 8,000 SGD per month to 10,000 SGD per month will also make more people eligible for new flats. There is also one more important plus. HDB has decided to build new flats in mature estates which was also drawing demand to resale market because of the location choices.

So, "Property agency bosses are predicting a 3 to 5 per cent fall in the prices of resale Housing Board flats. This correction could even hit 10 per cent if the euro zone crisis worsens and Singapore’s economy is affected, said the head honchos of major local agencies at a conference yesterday."
Source : Prices of Resale flats to fall 3 – 5%

Actually strong signs of a correction has already began in a large and important part of resale HDB cost, COV:

Cash Over Valuation (COV) falling in 2012 allover Singapore
As if the HDB resale flat prices are not ridiculously high, there is also the issue of Cash Over Valuation (COV), where you need to pay a high sum over already high HDB resale flat price. And they are falling (although still not reasonable):
"Cash premiums demanded by those selling their Housing Board flats are falling across the island, and by some 20 to 30 per cent in most flat types. Property agencies told The Straits Times that this is the result of the record number of new flats released by the HDB, as well as upcoming policy changes, which are putting the brakes on both supply and demand in the resale market. According to fresh figures compiled by The Straits Times, the overall median cash-over-valuation (COV) amount for all flat types based on last month’s deals has dropped in the range of $4,700 to $8,000. It has fallen more sharply for bigger flat types – as much as $10,000 for five-room flats and $17,000 for executive units."
Source : 30% drop in HDB flats COV prices
This may mean that resale HDB flats are no longer in as big a demand as before, especially with new private properties flooding the property market recently:
"Many property agencies noted that the sudden drop in COVs across the market was mainly due to the record number of flats launched by the government and the upcoming policy changes, which are expected to limit the supply and demand of resale flats."
Source : COVs for flats drop a massive 20-30%
Private residential property sales in January 2012 rise by three times compared to December 2011
Singapore is becoming a textbook case of credit fueled, low interest rate/high inflation environment forced  property bubble and party may not stop until the fuel of zero-interest rate dries up. Singapore private property sales were up sharply in January 2012 and news of high sales are pouring in. Nearly  500 new homes were sold over the week of Feb 13th:
"The sales figures show you the number of investors that are in the market...low borrowing costs have left them with few alternatives, liquidity doesn’t know where else to go,” he said."
Unfortunately, these people may well be survivor investors hoping for a greater fool (The greater fool theory is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a greater fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to someone else at an even higher price - Greater Fool Theory)

Sharp fall in total private home sales in 2011
The media in Singapore is usually focused on the new property sales by developers to follow the property sales numbers in Singapore. But the real deal is the overall number of properties sold in a given time both by developers and owners in the market. According to a DTZ Research report total private home sales in Singapore in 2011 fell sharply by 18.6% compared to a year ago. The fall would be sharper if the number of private residential properties bought by foreigners did not rise 20.4 per cent to a record high last year! Read more here.

Private property prices may fall 12% in the first few months of 2012
Although sales of new private residential properties are very high just a month after the new Singapore property cooling measures targeting non resident foreign investors, some analysts are expecting private residential property prices to fall as much as 12 per cent over the next three months of 2012 and demand for private homes to decline as well over the next few months. Read more here.

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