According to the 4Q 2014 real estate statistic published by URA, property price declined 1.1% from 3Q 2014, launches and take-up rate fell 10.1% from 3Q 2014, pipeline supply shrank 7.4% from 3Q 2014 and vacancy rate edged up 0.7% from 3Q 2014. All these pointing to Singapore property market still suffering from the 7 cooling measures being introduced by the Government to curb the red-hot property market. With expectation of oversupply starting end of 2015 till 2017 and a potential increase hike by US Fed this year, which will cause the SIBOR rate to move higher and property owners will have to pay a higher mortgage, the property market doesn't look bright at all going forwards. However, that has not changed the view that property cooling measures could be started to be eased this year, which was first mentioned in previous Market Analysis -- 14th Feb 15.
Property sector is cyclical in nature, doing from peak to tough or boom to gloom and as such property prices also rise and fall just like stock market. There is reason why property sector is cyclical and this mostly attribute to the fact that there is a gap of average 3 to 4 years from property launches till TOP as that is the time it takes to build up the property from scratch. From the moment one signs the agreement to purchase, pays down payment and applies for mortgage loan till the time when the key is ready for collection, anything can happen in between like economy goes into recession or one financially is unable to continue to own the property and the resultant of that is producing an extra supply of property. As the basis of demand and supply from microeconomics, any oversupply or drop in demand will eventually drive the price down in search of an equilibrium between demand and supply. Moving out of the initial equilibrium to search for the new equilibrium will lead to peak-tough or boom/gloom in the property market.
While there is no confirmation that Singapore property market has hit the bottom, it is also difficult to predict when exactly it will hit the bottom but there are signs that bottom is appearing and as such, property cooling measures should be starting to be eased if not when property price hits below the threshold, property market crashes and Singapore economy will get into recession. With increasing signs of property market getting into the bottom, the downside of property price will be limited and in a way, the downside of the stock price of property developer will be limited too. That could mean it is time to start nibble into property developer stocks.
List of signs :-
1. Though property prices continued the decline and might even extend into the next 1 or 2 quarters but the rate of decline has slowed down.
2. Like price on the slide, transaction volume in particular newly launch also on the shrink.
3. Oversupply will arise from this year and next year. These oversupply was due to those newly launch in year 2012 to 2013. While oversupply is never a good circumstances, it is only when oversupply is created, price drops then a bottom could be formed. In 2008, property market hit a bottom due to oversupply from the previous 2 to 3 years of construction and even HDB has to hold walk-in exercise to sell off the newly built HDB flat and with price of at least $30k below the original selling price.
4. The 8th cooling measure, US interest rate hike, is on the way. Most mortgage loan is tied to floating SIBOR rate and should US Fed to hike interest rate (which should be this year), SIBOR rate will move higher. In fact, SIBOR rate has already started moving up earlier this year. The increase not only could trigger some owner to default on mortgage payment or doing a firehouse sales to cut loss, property developers also facing higher borrowing cost to fund new project. That could eventually determine whether Singapore property market is going for a "hard" or "soft" landing. While Singapore Government is not directly responsible for 8th cooling measure, it can help to prevent a "soft" landing by start easing one of those 7 already implemented measures.
5. Singapore General Election is due in early 2017 and many expecting a late 2015 or 2016 election. Should the property market condition has not improved by then, one can expect the ruling party will have percentage of its win being shaved off. The only one to have an improved property market condition going into the General Election is none other than start easing of those cooling measures.
6. Deflation. It is the new headline faced not only Singapore but most part of the world too and deflation in general is no good to economy. Deflation resulted in not enough consumer spending and not price get cheaper. While the spending on food, transport, education, healthcare and utilities have not seen reducing, those on big ticket items like property sure does. Should property cooling measures not starting to ease, local property developers would slowly shift their focus overseas and that would further put pressure on deflation and chip off a portion of the economic growth.
As mentioned, it is not to fish the bottom of the property market but rather analyzing for the possibility of property market will bottom. As the possibility moves higher, the downside risk (for buying of physical property or stock of property developer) will reduce.
