En-bloc market stirring, but analysts warn of possible recession risks for buyers and developers
SINGAPORE — With the en bloc market stirring in Singapore, the stakes have risen for both developers and property owners looking to jump onto the collective sale bandwagon, given the current climate of rising interest rates and property prices.
- As of July 2022, there have been a total of 12 collective sale deals amounting to nearly S$3.5 billion
- This is already more than the S$2.2 billion from the 11 deals for the whole of 2021
- Developers and property owners looking to ride on these collective sales may face some challenges, analysts said
- Some analysts expect the heightened en-bloc sales activities to continue until 2023
- However, a full-blown recession or government intervention could slow down sales
SINGAPORE — With the en-bloc market stirring in Singapore while interest rates and property prices are rising, the stakes have gone up for both developers and property owners looking to jump onto the bandwagon for collective sales.
Property analysts told TODAY that on the developers’ part, they would have to consider the possibility of a recession occurring during their expected project launch date.
As for property hunters, the cost-conscious ones looking to buy their next home with the proceeds of an en-bloc sale may have to choose housing units in the city fringes or outside the central region at a time when property prices are on the rise.
Collective sales of properties, also known as en-bloc sales, have gathered pace this year, surpassing the frequency and amount of sales for the whole of last year.
As of July this year, there have been a total of 12 collective sale deals amounting to nearly S$3.5 billion, trumping the S$2.2 billion from the 11 deals for the whole of last year.
However, property analysts said that the uptrend is unlikely to hit the levels seen in 2018 when transaction volumes exceeded S$10 billion.
Ms Tracy Goh, head of investment and collective sales at property firm PropNex, said: “The second half of this year will see more challenges for collective sales as interest rates climb to its highest in the last decade.
“Development sites are big-ticket items, so developers are showing more caution in acquiring sites and we foresee only sites that are reasonable in land prices will get the developers’ attention.”
WHAT’S FUELLING THE LATEST WAVE?
Property analysts attributed the latest wave of collective sales to developers looking to replenish their land inventories.
Ms Goh noted that the unsold stock of new private homes had dropped from a high of more than 36,000 units in the first quarter of 2019 to 15,805 in the second quarter of this year.
“The healthy sales (of new development launches) set against a backdrop of dwindling unsold new private home stock in the market means that many developers are likely looking to replenish their land inventory and build up their future residential supply pipeline,” she said.
Mr Wong Xian Yang, head of research at real estate services firm Cushman & Wakefield, said that property owners were also keen to sell their housing units and secure a good price through collective sales due to keen interest from developers.
RISKS FOR DEVELOPERS AND PROPERTY OWNERS
However, analysts warned that there could be risks involved for both developers and property owners looking to get in on collective sales agreements at this time.
The risk of a recession occurring has increased given that interest rates are rising. Mr Wong said that developers will therefore have to consider the possibility of a recession occurring during their expected project launch date.
They also cannot delay their property launches indefinitely due to the property cooling measures that were introduced late last year, he added.
In a bid to cool the property market, the Government and the central bank rolled out several measures, one of which was that developers of residential projects will have to pay 35 per cent of the Additional Buyer’s Stamp Duty — up from 25 per cent — if they do not complete and sell all of the housing units of the project within five years.
“That said, a severe recession is not expected for now and a steep decline in property prices seems unlikely — barring an unforeseen deterioration in economic conditions,” Mr Wong said.
In the case of property owners, Mr Nicholas Mak, head of research and consultancy at ERA Realty, said that those who are price-conscious would have to “settle for a smaller unit” if they wish to use the proceeds from an en-bloc sale to buy a new property immediately.
“They may not be able to buy in the same neighbourhood because there are no new launches, or the older condominiums there are also looking to get an en-bloc sale, thereby making the asking price high,” he said.
"So these buyers will either pay high (for their next property) or end up buying somewhere else.”
Similarly, Mr Wong from Cushman & Wakefield said that rising interest rates would result in higher financing costs for buyers, reducing their ability to afford new property.
“As some buyers get priced out, we could see demand gravitate towards the mass market or city-fringe properties where prices are relatively lower,” he predicted, adding that this was more likely to affect buyers for whom cost is an important factor.
Property owners who are aware of the prevailing economic headwinds may be prepared to accept lower prices for a collective sale from developers if the en-bloc premium remains significant, Mr Wong said.
“Sometimes, it is more prudent to dispose an ageing and obsolete asset that may cost too much to maintain or if it does not make any more economic sense to upkeep.”
HOW LONG WILL THE EN-BLOC WAVE LAST?
Among the analysts interviewed, most said that they expect en-bloc sales activities to continue until next year, although Ms Goh of PropNex said that she expects some humps ahead in the second half of this year.
Mr Lam Chern Woon, head of research at real estate consulting firm Edmund Tie, is expecting collective sales activities to “continue meaningfully” until next year when the demand and supply balance for property stabilises.
He observed that in the 2018 en-bloc cycle, the momentum to replenish land was stronger because it was the early stage of the property market recovering after a few years of depressed sales and falling prices.
For the ongoing cycle, there are “more restraints” given the economic headwinds and higher stamp duty in the property market, he said.
Mr Lam and other analysts also flagged government intervention as a "wildcard" that could slow down the present gains in en-bloc sales.
A full-blown economic recession may also bring the wave to a halt, Mr Mak of ERA Realty said.
Related topicsproperty en bloc collective sale recession interest rates developer
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