Answer to property conundrum may lie outside the sector
After the global financial crisis, buyers have demonstrated a voracious appetite for private homes in S'pore.
From just 4,264 private homes sold in 2008, the year in which Lehman Brothers collapsed, sales jumped to 14,688 units in 2009 and a record 16,292 units last year.
In the first 5 months of this year, close to 7,000 private homes were sold. Market expectations are that 14,000-16,000 units may be sold for the full year.
The government has responded to the strong demand by stepping up land sales. However, land prices have continued to climb until very recently. Despite the substantial GLS Programme, land prices continued to appreciate until very recently, in the face of competition from developers looking for replacement land because of strong sales at property launches. In short, the competition sent land bids northwards, in turn resulting in developers launching new projects – at quicker turnaround times and higher prices, feeding on strong demand for end-units. These developers then again rushed to refill their landbank, in what some analysts have termed a vicious cycle.
On the demand side, the authorities have introduces measures such as lowering LTV limits for those already servicing an existing housing loan and imposing a seller's stamp duty to deter speculators. However, these have resulted in 'knee-jerk' reactions each time: buyers withdraw temporarily, to re-emerge a little later. The buying momentum continues.
So just what is feeding the property buying frenzy?
There are new households comprising S'poreans and PRs who will generate a certain amount of owner occupation demand for private homes. But there is also strong investment demand for private homes that is driven by liquidity both at home and from overseas investors.
Even foreigners who are not PRs here have been drawn to the island's property market. The completion of the two integrated resorts as well as S'pore's development as a wealth management hub have drawn foreign monies into real estate as it is a appealing investment. The disenchantment with financial products post Lehman's collapse has also rekindled S'poreans' love affair with property.
The question of overinvesting in property in S'pore may have been fuelled by a lack of trusty investment alternatives with decent returns.
Source : The Business Times, 23 Jun 2011
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