Buyers’ market? More like nobody’s market

Newly-released government flash estimates for housing prices in the first three months of the year show that they have continued their downward trend.

Private home prices fell a further 1.3 per cent from the previous quarter, while Housing and Development Board resale prices sank another 1.5 per cent. The downtrend was no surprise, as updates from other real estate bodies providing monthly data have been registering mostly declines across most market segments.

While the latest data did not include sales volumes, other sources have shown that the number of transactions has been coming down. So how do we treat such price trends arising from vastly reduced sales volumes?

Carefully, as they may not be representative of the actual market.

There is no doubt that the underlying market sentiment is weak as successive rounds of cooling measures and policy moves continue to bite. The sentiment has been made worse after new United States Federal Reserve Chair Janet Yellen last month made more specific comments about the timing of an interest rate rise than she probably intended.

In response to a question at her maiden post-policy meeting news conference, she suggested that a rate hike will take place around six months after the winding down of the bond-buying programme, earlier than investors had expected. With US rates leading the costs of funds across the world, markets were sold off.

With the increased pressure, it is only logical that anyone who needs to sell a property now will have to give discounts to attract prospective buyers, however small. Without this, the current state of affairs — of small price drops and slow sales — is likely to persist far longer as the majority of buyers and sellers continue to stay on the sidelines.

It is premature to describe the market as a buyers’ market.

Yes, buyers have lots more choices and developers’ are courting them more actively through agents. Yet, if it is truly a buyers’ market, why aren’t they getting it all their way? Why aren’t more buyers benefiting from the so-called advantage by paying substantially lower prices? Only a small number seem to be doing so.

In truth, the market is in a stalemate, notwithstanding declining prices. What is the impact of a 1.3 per cent decline on a million-dollar property? Only S$13,000. You can easily get a much lower price by selecting a lower-floor unit. Unless most of the sales were mortgagee sales forced upon owners by lenders, I would say the selling — for private housing, at least — is largely profit-taking by investors.

Statistics from the Monetary Authority of Singapore show that there is a lot of cash sloshing about in the economy. On that basis alone, it is hard to see the current sales by owners as originating from weakness.

For those who want to see a proxy struggle between buyers and sellers, they can find it in the leasing market. Older properties are losing tenancies quickly to newly-completed ones, but landlords of the older units are not panicking just yet. For the majority of these landlords who bought their properties many years ago and at much lower prices, it is simply a matter of lower rental income and weaker yields.

The time to panic will come one day, the timing of which remains to be seen. The threat hanging over the housing market is that interest rates will rise and rise significantly in the near future. They have actually risen, but only marginally as lenders beef up their cash resources.

How long has the market been waiting? It has been nine months now from the time the Fed first announced its decision to begin tapering its bond-buying programme. Most investors have taken their positions and nothing, it seems, has altered significantly since to make them change their minds.

In the meantime, the stalemate will continue. Let us brace ourselves for a truly boring property market.

ABOUT THE AUTHOR: Colin Tan is Director of Research and Consultancy at Suntec Real Estate.