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May new home sales likely to hit 11-year low with circuit breaker extension

30 April 2020

The combination of Covid-19 pandemic and extended “circuit breaker” measures has led projections of monthly new home sales to mimic a limbo dance: how low will it go?
New home sales in April are likely to be about 280 units, estimates Ismail Gafoor, CEO of PropNex. Based on caveats lodged as at April 25, 238 new homes have been sold so far. “It will definitely be less than 300 units,” he adds.

If the projection of 280 units is correct, that will bring new home sales (developers’ or primary market sales) in April to just 42% of the 660 units sold in March. On a m-o-m basis, the March figure was already 32% below that of February’s 978 units, says Gafoor.

Before the circuit breaker came into effect on April 7, there was a small window of about six days (including the first weekend of April 4–5) for property developers and agents to lock in some sales. “It wasn’t just the launch of Kopar; people were rushing to close deals at other already-launched projects before the start of the circuit breaker,” says Gafoor. “That’s why we still had 238 new homes sold in April.” (See Done Deals: Circuit breaker deals in April).
Meanwhile, secondary market (sub-sales and resales) sales last month are even lower. They currently stand at 204 units as at April 25, and is likely to end the month at 250 at most, reckons Gafoor.

‘Deals can still be done virtually’

With the circuit breaker extended until June 1, the suspension of property viewings and marketing roadshows as well as closure of project sales galleries will be stretched by another month. “Deals can still be done — through virtual tours on Zoom —even in the absence of physical project launches,” says Gafoor.
Some sales had originated from those who had viewed the virtual tours or video clips of projects, although admittedly, such deals are still relatively few in number, adds Gafoor. There are those who had visited sales galleries prior to the circuit breaker, and only made their decision later. Others could have been waiting for the funds from the sale of another property or asset, resulting in the completion of the purchase during the circuit breaker, he explains.

In the absence of new launches in May however, Gafoor reckons new home sales this month could be in the range of 100 to 150 units. Deals in the secondary market are likely to be even more muted — to the tune of 50 to 100 transactions. “It will be the lowest monthly home sales in the entire year,” predicts Gafoor.

Lowest since Global Financial Crisis?

New home sales of 100 to 150 units will be a new low in over a decade. But it will still not be as dismal as in January 2009, when just 108 units were sold, excluding executive condos (ECs). “In 2009, the Lunar New Year holiday fell in January, so new home sales that month was hit by both the Global Financial Crisis (GFC) and seasonal lull during the holiday,” says Nicholas Mak, head of research & consultancy at ERA Realty.
In the depths of the GFC, monthly new home sales hovered within the range of 100 and 200 units between October 2008 and January 2009, notes Mak. In hindsight, January 2009 proved to be the trough: the following month, new home sales jumped to 1,332 units. Thereafter, monthly figures stayed at above 1,000 units for the next seven months until September 2009. “That marked the return of home-buyer confidence and market recovery,” he adds.

For the whole of 2009, total private residential sales (both primary and secondary) amounted to 13,642 units. Sub-sales accounted for 1,832 or 13.4% of total sales that year. The series of property cooling measures over the past decade have kept sub-sales in check: over the last three years from 2017 to 2019, sub-sales made up only 1.5% to 1.6% of total private residential transactions, Mak says.

‘Warm up’ in June

Even after the circuit breaker is lifted on June 1, safe distancing measures could still be in place, cautions PropNex’s Gafoor. Consequently, he doesn’t expect any major launches that month.“Most launches are likely to be pushed to the second half of 2020, to July onwards.”
While the level of sales in June is likely to be higher than that of May’s, Gafoor reckons it could take some time for activity to “warm up” before returning to the pre-circuit breaker levels. One reason is that a number of developers had planned to launch their projects in April and May, but shelved them because of the circuit breaker.
There is a possibility that the government could restrict the resumption of construction activity even after the circuit breaker is lifted, given the scale of the outbreak at workers’ dormitories, says Gafoor. As such, there could be a delay in the completion of project sales galleries and showflats, which could also push back developers’ launch dates, he points out.

Project launches to expect in 2H2020

According to Gafoor, one anticipated new launch is The Landmark (former Landmark Tower) by a ZACD-led consortium. The 396-unit private condo on Chin Swee Road, just at the fringe of the CBD, will be developed in a joint venture with Singapore-based Chinese developer MCC Land as well as SSLE Development (the investment vehicle of the Lim family-controlled construction company, Sin Soon Lee, and its property development arm, Elitist Development).
Another project in the launch pipeline is the 258-unit Verdale by CSC Land, the property development arm of China Construction. The project is located just off Jalan Jurong Kechil and sits on a 99-year leasehold site purchased in a government land sale in September 2018.
Nearby is The Linq @ Beauty World by listed construction, engineering and property development group BBR Holdings. The freehold, mixed development with apartments is located on the site of the former Goh & Goh Building which BBR Holdings had purchased en bloc in 2017. The Linq is also adjacent to Beauty World MRT Station on the Downtown Line.
In the Toh Tuck area is Forett @ Bukit Timah. The 633-unit, 999-year leasehold condo is on the site of the former Goodluck Garden, purchased en bloc by a joint venture between Qingjian Realty and Perennial Real Estate.

Pent-up demand tempered by subdued sentiment

While there may be some pent-up demand, it is likely to be tempered by more subdued sentiment as job security has become a concern, notes Gafoor.
Business owners in sectors that are deemed non-essential have also been affected by having to shut down during the circuit breaker.
On the other hand, those whose jobs are secure and whose businesses are considered essential services are likely to be in a position to proceed with a new home purchase. They include civil servants, those working in the healthcare or medical supplies sectors as well as supermarkets, food and delivery services.
For now, many developers are adopting a wait-and-see approach. “They want to gauge the market environment post-circuit breaker before deciding whether to go ahead with their project launch,” says ERA’s Mak. Sentiment is a key factor too, he adds. “After the circuit breaker, people will visit showflats. But will they be in the mood to buy a home? That is a big unknown at this point.”
The two-month pause in transactions could further widen the gap between prices buyers are willing to offer and owners are willing to sell at, leading to an impasse. This will further hamper transactions in the coming months, says Mak.
Given the fast deteriorating economic conditions, developers are expected to be more forthcoming with “star buys and discounts”, says Christine Li, Cushman & Wakefield head of research for Singapore and Southeast Asia. “As they have an ABSD [additional buyer’s stamp duty] deadline to meet, they would want to sustain their sales momentum if possible,” she adds.

Private home sales forecast

In 1Q2020, total private home sales was 4,309 units, 11.7% lower q-o-q compared to the previous quarter. On a y-o-y basis, it is still 15.1% higher compared to 1Q2019.
“Sales continue to tip in favour of developers’ sales, with 50.8% of total sales being new sales in 1Q2020,” says Li. Sub-sales and resales make up 0.9% and 48.3% of total sales respectively.
Meanwhile, in 2Q2020, two-thirds of the sales are likely to be “written off” because of the circuit breaker, reckons Mak. “Any light at the end of the tunnel is likely to come towards the end of 3Q2020 or start of 4Q2020,” he reasons.
Mak forecasts that the year could end with between 6,000 and 8,000 new home sales, about 19.3% to 39.5% lower compared to the 9,912 units recorded in 2019. Even at the lower end of the spectrum, the forecast is still higher than the 4,264 new homes (excluding ECs) sold in 2008 during the GFC, he notes.
Total transaction volume (both primary and secondary sales) in 2008 plunged by two-thirds y-o-y during the GFC, observes Ong Teck Hui, JLL senior director of research & consultancy. He attributes it to “a highly exuberant market in 2007” when private home sales totalled 40,654 units.
By contrast, the total transaction volume in 2019 was only 19,150 units, largely due to the cooling measures in place, says Ong. “While total transaction volume in 2020 may not decline by the same magnitude it had in 2008, it could still be around 40% to 50%,” he adds.
Unsold inventory at 1Q2020 was 29,396 units, according to URA data. This is 3.5% lower than that in 4Q2019 and a sharp 22.2% decline from the recent high of 37,799 units in 1Q2019. “Four consecutive quarters of downtrend indicates that the oversupply situation is gradually improving,” says Ong.

How far will prices fall?

“Price decline is unlikely to be steep in the next two quarters at least,” adds C&W’s Li. She attributes this to the Covid-19 temporary relief measures provided by the government, which include deferment of mortgage repayments for six months. “As such we expect residential prices to correct by around 5% this year, with further declines next year.”
Tricia Song, head of research for Singapore, Colliers International, is expecting private residential prices to decline by 3% to 5% in 2020, in line with contraction in the economy. It will be the first decline since 2016, when prices fell 3.1%, she notes.
Goldman Sachs analysts Jason Yeo and Douglas Eu are projecting a steeper price drop of 10% for the year. However, the degree of decline is already “more moderate” relative to the 25% drop during the GFC and the 45% plunge during the Asian Financial Crisis (AFC) of 1997–1998, note the analysts.
They attribute the more moderate price decline to several factors: fewer speculative transactions as a result of nine rounds of property cooling measures; smaller proportion of foreign property purchases, which has declined from 14% prior to the GFC, to 5% to 6% in 2019; and lower unsold inventory.
If property prices were to drop by 10% this year, “there’s a good chance that policy cooling measures could be eased”, say the analysts at Goldman Sachs

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