Where Is The Fire Sale

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Where Is The Fire Sale

We are looking at grim economic numbers as the Covid-19 pandemic batters businesses in Singapore. In the latest labour market report by the Ministry of Manpower (MOM), Singapore had a record decline in total employment in 1Q2020 and the jobless rate was the highest in a decade. Analysts polled by the Monetary Authority of Singapore (MAS) had a pessimistic view of the economy, forecasting Singapore’s GDP to contract by 5.8% in 2020, a sharp reversal from the previous forecast of 0.6% growth.

 

With recession looming, many prospective home buyers are wondering if they should hold back their purchases and wait for property prices to crash before entering the market.

 

 

How Long Will The Crisis Last?

 

According to the Organization for Economic Co-Operation and Development (OECD), there are 2 possible scenarios: a single-hit scenario and a double-hit scenario. In both scenarios illustrated below, World GDP will take at least 2 years to recover to pre Covid-19 level. This outlook is worse than the Global Financial Crisis in 2008.

property-investor-singapore-oecd-world-economic-outlook

Impact On Property Prices

 

If there is a prolonged period of recession and unemployment continues to grow, consumer confidence will be hit and property sales volumes and prices will inevitably fall. Experts are predicting up to an 8% fall in private home prices for 2020.

 

Recently some ‘fire sales’ have started to surface in prime districts. Two resale condominium units at Leonie Parc View and The Orchard Residences in District 9 were sold during the Circuit Breaker (CB) period at losses of more than $2M.

 

However, in the broader market, prices have remained stable. The chart below compares the median prices of all non-landed residential properties before and during CB.

property-investor-singapore-median-prices-psf

Buyers and investors hoping for a repeat of the 45% drop in prices during the Asian Financial Crisis from 1996 to 1998 may be disappointed.

Cooling Measures Prevented Asset Bubble

 

Singapore has put in place macroprudential policies to mitigate systemic risk in the financial system. The Total Debt Servicing Ratio (TDSR) framework for property loans was introduced in 2013 to encourage financial prudence among borrowers. Any new loans or refinancing from 29 June 2013 onwards would have been subject to more stringent credit approval by financial institutions. According to MAS, TDSR objectives seem to have been met as less than 10% of borrowers have a TDSR higher than 60%. Property cooling measures over the past decade have also prevented an asset bubble from forming.

 

 

Interest Rates To Remain Low

 

Interest rates have been falling and are almost at a historical low not seen since 2011. The 3-month Singapore Interbank Offerred Rate (SIBOR) has fallen from 1.774% in January 2020 to 0.559% in June 2020. Borrowers on variable loan packages will be servicing significantly less interest payments and lower instalments on their property loan. Interest rates are expected to remain low for the foreseeable future.

 

 

Competitive Economy

 

Singapore is the world’s most competitive economy for the second year running in the latest IMD World Competitiveness Ranking and is poised to rebound strongly when global efforts to fight the pandemic are successful. The Singapore real estate market, a perennial favourite with foreign investors, will stand to benefit when the economy recovers.

property-investor-singapore-price-recovery-after-crisis

Are you ready to take advantage of the opportunities during this period or will you be chasing the rebound when it happens? Get in touch with me for a personal consultation today.

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