SINGAPORE (Nov 13): Amber Park, a 31-year-old freehold condominium in east Singapore, was snapped up at an eye-watering $906.7 million in a collective sale early last month. Real estate industry commentators have now begun to herald in earnest the return of en bloc season, a decade after the last peak, and a turn of the housing market.

In 2007, 111 en bloc transactions worth nearly $11 billion took place. There have been 14 sales worth $5.4 billion in the five-month period to October this year, according to real estate consultants Colliers International Singapore. Its analysts believe the current wave will continue into 2019, with suburban deals giving way to prime luxury sites soon.

Bids for government land sales have not been too shabby either. In May, a residential site on Stirling Road was awarded to a record bid of $1 billion submitted jointly by units of China’s Nanshan Group and Hong Kong’s Logan Property Holdings Co. There were 13 bids for the site. The following month, a mixed commercial and residential site in Bidadari drew a top bid of $1.1 billion from Singapore Press Holdings. There were 12 bids for it.

And, there has been upbeat real estate data from the URA. The most recent set of statistics, for the 3Q ended September, showed a slight 0.7% q-o-q improvement in selling prices of private residential properties. There were also more resale transactions during the three months to September than in the previous quarter.

What’s driving the revival? Interestingly, it was around the time the Amber Park deal was closed that Real Estate Developers’ Association of Singapore president Augustine Tan warned that the rising prices of land acquisitions, as a consequence of developers’ increasingly bullish bids, were not sustainable.

“With property measures in place, slow growth in Singapore’s population and manpower curbs, we do not see runaway demand in sales transaction volume and property prices in the next few years,” said Tan at an event organised by Redas.

Housing in Singapore is considered unaffordable by global standards, with median prices at nearly five times the median annual household income. Will the government introduce further curbs? How high can prices get?

Cyclical and secular changes

A convergence of factors have buoyed sentiment in the property market, economists say. There is an overall pickup in the global economy, and a stronger than expected growth forecast for Singapore. Interest rates are still low, and there is significant liquidity in the market following the past few years of economic doldrums.

At the same time, property developers awash in cash have been, understandably, eager to replenish their land banks as the number of unsold units decreases.

However, some industry experts have been circumspect about the growing optimism in the housing market. One long-time commentator reckons it a “dead cat bounce”, and expresses doubt that asset prices could keep going up. Redas’s Tan also notes that despite the uptick in URA’s private home price index, private housing rents are still declining and new supply will just add to still-high vacancy rates. Indeed, URA’s 3Q2017 data shows that the takeup rate of units fell 13.5% from the previous quarter. Rentals were flat and while supply of new properties is slightly lower q-o-q, the vacancy rate rose 0.3 percentage points to 8.4%.

Christine Li, director of research at Cushman and Wakefield, believes the recent residential price trend is linked to the wave of en bloc deals. Noting that prices in all housing segments rose for the first time after 15 consecutive quarters of decline, Li attributes it to more owners withdrawing their units from the resale market in favour of a collective sale. “This has created a temporary shortage of retail units, therefore pushing up prices.”

Li points out that developers’ inventories are also declining, which could drive further activity. “Anecdotal evidence shows that there are around 10 developers who are still land-starved. As such, we expect the en bloc market to sustain [itself] in the next 12 to 18 months, with potentially another 10 to 15 sites being transacted during this period.”

Industry watchers do not expect en bloc sales to reach the 2007 peak, although some big deals are likely. The sellers of Braddell View, a former HUDC development, expect a collective $2 billion in a recently announced launch for sale. In September, owners at Pine Grove, another former HUDC estate, launched their third attempt at a collective sale, at an asking price of $1.7 billion. The biggest en bloc sale so far has been the $1.3 billion purchase of the Farrer Court estate in 2007 by CapitaLand. The D’Leedon condominium now occupies that site.

Developers competing for en bloc sites may find themselves competing for buyers in the next few years. Analysts at DBS Group Research say up to 12,000 new units could be launched between 2H2018 and 2019. As such, “competition for buyers’ dollars” could be “intense”.

Furthermore, the dynamics of the collective sales market have changed over the past decade. Ten years ago, sales were largely in the prime districts and owners pocketed enough to buy more than one property. This time around, however, the en bloc deals announced have been outside the city centre. The apartments also tend to belong to owner-occupiers, who might be more inclined to purchase another smaller home to live in, rather than invest in multiple properties, or save more of the sales proceeds.

Indeed, there have been structural changes in Singapore’s economy, which, in addition to policy adjustments, would have an impact on the housing market. Singapore’s population growth has slowed, and the population is ageing. Immigration, while still higher than in many other cities, has been tightened. At the same time, the level of home ownership is about 90%.

Consequently, demand for housing, at one point barely enough for newlyweds, should begin to wane. In fact, some industry observers argue that housing prices would have to come down because supply is going to outpace demand by a substantial measure.

“[Collective sales]-eligible homeowners should take account of the depreciation of their ageing properties and accept realistic prices,” advocates Collier’s Tricia Song in a research report. “Developers should be mindful of the pace of landbanking and launches, as well as the concentration of sites, with pricing discipline.”

National psyche

Market forces are not the only important factor to consider in determining the outlook for property prices. The government has some significant policy tools at its disposal too. “The government has a very strong grip on the supply of land,” says Donald Low, associate dean at the Lee Kuan Yew School of Public Policy. Essentially, the authorities could calibrate the market by releasing more land for sale when the market heats up or do the reverse when the market is depressed. What might cause it to intervene?

The national approach towards property ownership has not shifted much from the early post-independence years, when owning a home was a safe bet against raging inflation. In fact, home ownership has been put on a pedestal with the idea that a flat is an ever-appreciating asset that provides financial security into retirement.

This line of thinking can be dangerous, though. “Property price inflation that outstrips wage inflation, or consumer price inflation in general, shouldn’t be viewed as a good thing,” says Low, adding that home ownership is useful but only to a point. “It eats into people’s liquid savings [and] feeds into the mindset that property prices will rise continuously.”

There is also the risk of an asset bubble, and one that is dangerously fuelled by leverage as people borrow to buy property with the expectation that prices will rise. “Asset appreciation is okay, as long as it’s not fuelled by leverage,” says Low.

Indeed, earlier this year, concerned about the high prices that old flats were fetching, Minister for National Development Lawrence Wong cautioned that buyers should not assume all old flats will be eligible for the Selective En bloc Redevelopment Scheme, where the government gives owners of older flats a package with compensation and rehousing benefits. Flats that have SERS potential often command a premium.

It could also result in a rentier class, which, in Low’s view, is detrimental to the broader society. “For the individual, does passive income make sense? Of course. But if everybody wants to be a rentier, who is going to be the productive class? This is the tragedy of the commons; it’s like everybody standing up in a stadium to get a better view,” he says. “It’s [also] deeply unequal: Who are those who have the appetite to play the property market? It’s a regressive distribution of resources.”

Government intervention could resolve some of these problems. “The property market can’t be expected to self-correct,” Low adds. “It’s not like other markets. In any other market, when prices rise, people buy less. In housing, there’s a speculative element. If people expect prices to go up, they buy more and, by doing so, propel prices higher, and then expectations become more bullish.”

On its part, the government has said it is keeping a close eye on the market. The curbs on property purchases, implemented in stages since September 2009, are also likely to stay, although industry analysts are not expecting further tightening. “If any [is to be done], indirect measures could be considered,” note DBS’s analysts. These could include limits to lending, particularly to developers, as well as raising the supply of government land sales. “This is an easy solution in our view as it will offer more alternatives... and thus result in more cautious bidding.”

Says Low: “I think the right conclusion to draw from all this is, first and foremost, the era of almost-guaranteed property price appreciation is over.”

This story appears in Issue 805 of the The Edge Singapore
This story, written by Michelle Teo, first appeared on The Edge Singapore.