Path to prosperity

On 6 May 2020, the Ministry of National Development announced temporary relief measures to support the overall property market with both developers and homeowners getting help.

Impact on developers

Understandably this is a slight positive for developers given that construction sites and show-flats have to be closed during the circuit breaker period. For development projects, even when construction sites reopen, it is likely that the pace of work would be greatly reduced due to the safe distancing measures and other additional measures involved. Hence the new measures help to mitigate the impact of the delays. 

Developers acquiring sites after Jul 2018 are subject to 30% ABSD of which 25% may be remitted. For the ABSD remission, developers used to have 2 timelines to meet. Firstly it had to commence development within 2 years of the purchase of land. Next, it had to complete and sell all housing units within 5 years from the purchase of land in order to qualify for ABSD remission. This was meant to prevent developers from accumulating land bank and thus having implicit control of the new home supply. From a developers point of view, this was rather punitive as the ABSD would be on the full value of the land rather than the proportion of unsold units. This thus highly discouraged land banking. With show-flats closed and buyers having to stay at home, home sales have plunged. April 2020 registered just 293 transactions, the lowest in the past few years. Developers approaching the 5-year mark and have unsold units would be panicking slightly; these fears can now be pushed back for another 6 months.

Monthly New Home Sales (Source: URA Realis - 9 May 2020)

Impact on home owners

The new measures would help improve the holding power of home owners and hence I don't expect to see any significant decline in home prices in the short-run. With jobs secure for now and interest rates low, home owners can afford to hold on to their selling prices and wait out this downturn. For now, HDB resale transactions have been relatively stable. 

Before the new relief measures, a Singaporean married couple purchasing their 2nd residential property would have to sell their 1st residential property within 6 months after the date of the purchase of the 2nd property (if it is a completed property) or 6 months after the TOP if the 2nd property was uncompleted. Without the relief measures, it would have been likely that homeowners could have lowered their asking prices in order to meet the timeline. This is especially important in 2020 where there is a record number of HDB flats hitting their 5-year Minimum Occupation Period (MOP). Typically when flats hit their MOP, there would be home owners who wish to upgrade to a larger flat or private property and these HDB upgrades would then drive transaction volumes. 

Impact on the property market and home prices

While this is positive for the residential property market, readers have to be mindful that the prevailing sentiment was negative (ie. low base); this news probably upgrades the sentiment to neutral. From the supply side there is a large number of launches and older launches now given peak completions in 2022/23 as the typical waiting period after launch is around 3 years. Developers, being aware of the competition in the market, are likely to price developments competitively, thus preventing prices from increasing too much. 

On the demand side, the impending recession will force many households to reevaluate their property purchase plans. Potential HDB upgraders could become more cautious and wait out the uncertainties before committing to a new purchase. In the luxury market, foreign demand is likely to come down as a result of travel bans. Additionally, business owners may choose to cash in on some investment properties in order to ensure sufficient cashflow for their businesses to stay afloat. I further believe that in the mid-term demand will crumble even more as relief measures expire, businesses start to close and employment comes down. 

Overall, the outlook is going to be short-term neutral, mid-term slightly negative. However, looking at the historical URA PPI, each trough is higher than the previous trough so there is still some hope for the future, just not so soon. 

I recently got notified by Feedspot that my blog would be included in the Top 75 Singapore Investment Blogs. While I have heard of some of the top few blogs, the list reminded me again that the community interested in personal finance and investments is pretty large in Singapore. I first got interested in the markets during the 2008 GFC, back then I was still in high school and started using a simulator on Investopedia to trade. Later on in JC, I took this interest in financial literacy further by having my Project Work (PW) centred around it. 

My blog was started for 2 complementary reasons:

1. Diary - After having been interested in investing for almost 10 years, I realized that a lot of what I learnt from attending investment talks and analyst briefings were not recorded down properly. As a result, I was not able to fully grasp or remember some of the learning points. Every now and then when the same concept is brought up, somehow it seemed like I was learning it all over again. 

2. Education - Rounding back to my PW project on financial literacy, the project showed me (and my groupmates) that there was a gap in financial literacy education that formal education did not address. I hope that my blog will be a part of the many resources that readers have to improve their financial literacy. Through my posts, I also do hope that readers would be able to get better insights into how the market works and what drives businesses. As I may not always be correct, I do hope that the comments section can be better utilized by readers who have suggestions for improvement or an alternative view. 

Since inception in mid-March 2020, I have done 14 posts (excluding this post) about 8,000 page views with multiple posts getting past the 1,000 view mark. Interestingly the distribution of views was different from what I expected; some of my better posts (in my opinion) received lower views than posts I spent less effort for. Also, I started receiving more page views after submitting my blog to be on aggregator sites like sginvestbloggers and thefinance so a shout out to the guys running those sites. 

To end off, I am appreciative of the support from readers (whoever you are) for my blog and wish everyone good luck in the markets!