When showflats re-opened and viewings commenced, many in the real estate market were apprehensive; there was a common sentiment that, with the current recession, buyers might avoid purchasing private properties.
As such, it surprised many to hear that private home sales rose 105 per cent last month from May; new condo sales numbered 998 units, up from just 487 units the month before. These have been the highest June sales since around 2013, the last peak of the property market.
Year on year, this is a rise of about 21.6 per cent; so the real estate market actually did better during this period than before the Covid-19 onset.
This also follows a 75 per cent rise in new private home sales between April and May. In the month of April, new private home sales numbered only 277 units.
Update: As of 24th July, private property prices have also managed a 0.3 per cent rise in prices for Q2 2020. As such, we can see that demand remains healthy, with volume as well as prices rising.
But why is this happening, and why aren’t buyers shying away from the property market?
Here are the main reasons:
- Some of the purchases are due to pent-up demand
- Home loan interest rates are especially attractive
- The number of affordable new developments
- There are a record number of flats reaching MOP
- Ultimately, property is a long term investment
1. Some of the purchases are due to pent-up demand
Some of the sales bump could be due to the Circuit Breaker period. During this time, many of the buyers may already have the intention to purchase; but they held off as showflats were not open, or that it was not convenient/safe to go out and sign papers.
As such, some of these buyers who may have made their purchases earlier are simply completing the transactions now. Some developers and agents have noted that several buyers, who made the purchases shortly after the Circuit Breaker, had already expressed interest as early as March or April this year.
2. Home loan interest rates are especially attractive
At this point in time (July 2020), home loan interest rates are around 1.2 to 1.3 per cent per annum; or about half the HDB Concessionary Loan Rate. This is significant because, the less interest you pay on your property, the better your eventual returns (and the better your net rental yield if you rent out the property, as monthly repayments decrease).
To give you a sense of the difference, consider a home loan of $1 million over 25 years.
At an interest rate of about two per cent, the total interest paid would be about $271, 563. At 1.3 per cent, the total interest paid falls to about $171,823; a difference of $99,740.
Also consider the difference in monthly repayments. At two per cent interest, you would pay about $4,238 per month. At 1.3 per cent, this falls to about $3,906. That’s around $422, or enough to cover the maintenance fees of most condo developments.
In even better news, these low interest rates are expected to last all the way till 2022.
(Ps. If you already have a home loan and want to take advantage of the lower rates, contact me on Facebook and I can help you out).
3. The number of affordable new developments
While volumes may be rising, most buyers are still price sensitive. This could be due to the economic downturn in general, or simply because many of the buyers in 2020 and 2021 may be recent upgraders, who are not yet ready to go for prime region properties (see point 4).
Most of the new private home sales are not in high-quantum areas like Orchard. In fact, the Core Central Region (CCR) – districts 1,2,6,9,10, and 11 – saw a 60.4 per cent decrease in sales volumes over the first quarter.
Most of the new home sales occurred in fringe districts, with leading developments being Treasure At Tampines (Tampines), Parc Clematis (Clementi), and The Florence Residences (Hougang).
As such, the rebounding sales volumes might be on the back of more affordable new condo units. Even in the months preceding the Circuit Breaker, the launches that stood out did so due to having a low quantum (e.g. The M Condo, which had units starting from under $1 million despite its District 7 location).
Buyers still appear to be price sensitive, so challenges may emerge for luxury properties in the coming months.
4. There are a record number of flats reaching MOP
Some 50,000 flats are reaching their Minimum Occupancy Period (MOP) in 2020 and 2021. This results in a higher number of upgraders, as fewer Singaporeans are willing to hold on to their HDB flats for prolonged periods (HDB resale prices have declined steadily since 2013, even as the number of flats being built continues to rise).
We already saw this happening in January this year, even before Covid-19 struck. The big question was whether the resulting downturn, or the Circuit Breaker, would cause upgraders to rethink their decision.
The answer, as you can see from the surge in volume, appears to be “no”. Singaporean buyers are generally a prudent lot, and often have substantial savings (e.g. in their CPF) that are complemented by sale proceeds of their flat.
5. Ultimately, property is a long term investment
Most property buyers are genuine home buyers. To this demographic group, the issue is whether they have the personal finances to afford their home.
If they do, then the current Black Swan – be it Covid-19 or another Global Financial Crisis – is something they plan to simply ride out. This is not relevant to a home owner who doesn’t care about rental yield or returns, and simply wants a comfortable place to live (perhaps for the rest of their lives).
As such, it’s mainly pure investors – a smaller portion of the crowd – who are concerned with timing the market, and episodic events like the Covid-19 downturn. This group faces some serious concerns, when it comes to buying right now (e.g. we don’t know how the rental market will be, if all of the expatriate workers start heading home).
But if your intention is a roof over your head, then your concern is affordability with regard to your personal financial situation.
Are you interested in buying a property in the aftermath of Covid-19?
If you are interested, drop me a message and I can help you ascertain if this is the right time for you and if you’re in the right financial state to proceed. You can also follow me on Ron Chong.net for further updates.