#1. Property cooling measures are anticipated to be improved
In many of these districts, prices per square foot have already been on the rise despite property cooling measures introduced in 2014, but the government is expected to ease off some of these measures sometime 2018.
This means the property market might bottom out, bounce and boom again. However, the beginning of 2017 sees three other factors that will affect how soon the market will warm up again after tepid performance over the last 3 years.
#2. Extension charges for unsold properties
First of all, property developers may face up to $240m in extension charges if they fail to sell any units by end-2017, according to calculations by property consulting firm Cushman and Wakefield (C&W).
Foreign property developers are required to sell their units within two years of completion – that means all listed companies in Singapore, as even companies with only one foreign shareholder or director are defined as foreign.
The developers who could incur these substantial charges include City Developments, Capitaland, Wing Tai, Wheelock Properties, China Sonangol and Heeton Holdings.
What does this mean for the property investor? Renowned property developers like the ones listed above may not care about extension charges as they only make up a small proportion of their book values and won’t dent their financials.
But smaller developers might find these costs bitter pills to swallow in the light of a sluggish property market. If they only have a few units left, these smaller develops might consider selling the units off at big discounts before year-end – which can be cheaper overall than continuing to pay extension charges.
So look for developments which TOP’ed in 2017 but which still have yet to sell all their units – you might find yourself a real bargain.
#4. Rising SIBOR
Most home loans in Singapore are based on SIBOR, the Singapore Interbank Offered Rate. This is a reference interest rate based on the rates used by banks when lending unsecured funds to each other. SIBOR-based home loans
But in December 2016, the US Federal Reserve raised its interest rates by about 0.30% for the first time in nearly a decade. This has a knock-on effect on the SIBOR, as local banks will adjust their rates to reflect the higher costs of lending in USD.
A SIBOR-based home loan is a variable rate loan package, so if SIBOR increases, there may be home owners who will struggle to service the additional interest charges. The US Federal Reserve is predicted to increase its interest rate gradually over the next two years, so its likely that SIBOR will keep on rising.
Of course, a prospective home buyer can choose fixed-deposit linked rate home loan packages or fixed rate packages – but these usually have higher interest rates than the other packages.
Will the higher costs of lending depress the property market just enough to offset the boost from the expected easing of property cooling measures?
#5. Increased vacancy rates, oversupply of units
Despite the recent raising of the income ceiling from $13,000 to $15,000, demand for executive condominium units does not appear to have been boosted.
With a 10.5% vacancy rate in the 3rd quarter of 2016, up from 7.2% in the first quarter of 2016, the rising vacancy rate trend seems set to continue on into 2017.
This comes amidst a glut of supply in ECs in the pipeline – according to URA, at the end of Q3 2016, 3,586 launched EC units remain unsold. And 3,945 units are likely to be launched for sale in 2017, putting the total supply at over 7,000 units.
Meanwhile, the government continues to set aside land parcels for EC developments, making it likely that supply might continue to exceed demand, at least for public housing. That too will dampen the resale and private property market and prevent prices overall from rising much.
With all these 5 points acting in unison, 2017 might be just the right year then, for the smart home-buyer to enter the market, provided you do your calculations carefully.
Above all, ensure that you can differentiate among lower property prices you are likely to see, against the higher costs of borrowing over the upcoming five years. You might also want to take into account that in five years’ time chances are your real estate’s value might escalate enough to make it all worthwhile