A further drop in Singapore real estate prices is expected after the Real Estate Developers’ Association of Singapore (REDAS) urged the Government to lift or review property cooling measures after it was announced that developers at 13 projects had 700 unsold homes in the pipleline and they were about to be hit with fees of almost $100 million.
Singapore Real Estate Prices Expected to Drop
“The real estate market is reeling from the compounding effects of an oversupply situation, rising vacancy rates, weak demand and increasing interest rates.” – REDAS president Augustine Tan
Though no specific projects were mentioned, it is generally understood that weak market sentiments have contributed to a tepid economy with many real estate buyers taking a “wait and see” approach as they wait for further drop in Singapore real estate prices.
REDAS president Augustine Tan made the call during the association’s Spring Festival Lunch adding that “there is an urgent need to bring stability and ensure a soft landing to prevent further damage to the fragile economy,” he went on to cite weakened global growth, poor sentiment in the stock market and Singapore’s own soft economy and restructuring as the government unveiled skills credits in January to help unemployed workers re-skill as unemployment rates rise.
Meanwhile, many are expecting developers already reeling from unsold units to be hit by a second punch related to the Residential Property Act. The Act compels developers with foreign shareholders and directors to get approval via qualifying certificate when acquiring private property for residential development. If the developer fails to sell all units within a two-year window after completion (within five years), they will pay extension charges. Land sold through the Government Land Sales programme are exempt.
In this case, it is noted that these pro-rated fees are expected to hit $100 million. These figures could worsen since fees under the Act can rise an additional 8% of the purchase price of the property for the first year, 16% for the second and 24% for the third. As a result some developers work with hotel management firms like Goodwood Group to turn existing hard-to-sell or potentially under-priced developments into serviced apartments for expatriates. Some like SC Global choose to de-list from the stock market thus avoiding the need for qualifying certificates since the foreign ownership component is negated.
How bad is the Singapore Real Estate Situation?
REDAS President Tan, who also serves as Executive Director at Far East Organisation hinted that with more than 60,000 units in the pipeline and 26,500 vacant units as of 2015, the Singapore real estate situation could worsen.
Also contributing to the weakened property market is the Additional Buyer’s Stamp Duty or ABSD. first introduced in 2011 and revised in 2013, ABSD is a tax paid by both consumers and developers where additional tax due varies according to the purchasers’ resident status and existing number of properties owned. Developers on the other hand, are expected to pay 10 to 15% additional land costs unless they complete the project and sell all units within five years of purchasing the property.
In addition to ABSD, Total Debt Servicing Ratio or TDSR component was introduced to further cool the overheated property sector. TDSR limited borrowers to 60% of gross monthly income for mortgage repayments.
The Urban Redevelopment Authority released end 2015 figures showing private property prices have fallen 8.4% but analysts note that the decline while significant, fails to meet the more than 60% rise in prices after the 2008 global financial crisis. Therefore, it is unlikely that the Government will want to risk a rebound as prices continue to stabilise.