Why should I care? A property analyst's take on Budget 2020

Budget 2020 did not have anything particularly new with regards to property measures as the Ministry of National Development had already announced the adjustments to income ceilings and increased housing grants. 

Nonetheless, 2020 has seen substantial developments in the property market and we approached Dr Tan Tee Khoon, PropertyGuru's country manager in charge of Singapore. 

We sought to garner some insights into those developments as well as how the overall macroeconomic environment could potentially affect property prices in the near to medium term. 

Critically, we raised the question of affordability as well as whether buyers should consider timing their purchases. 

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WHAT DOES YOUR LATEST RESEARCH MEAN FOR PROPERTY BUYERS AND SELLERS IN THE MARKET TODAY?

Dr Tan (T): We released our Property Market Index Q1 2020 report earlier this week.

The year 2020 began with the unforeseen macro-level impact of COVID-19 but we can draw a parallel to the SARS outbreak 17 years ago. The impact of SARS in Singapore was first felt in November 2002, and conditions only stabilised by May 2004. 

During this period, there was no significant property price correction — overall private home prices only softened by 2.3 per cent, based on the URA residential price index. Furthermore, the total sales volume in primary (new launches) and secondary (resale) markets staged a steep recovery shortly thereafter.

Likewise, while the overall impact is still being assessed each day — given the proactive measures by the government and the learnings from the SARS outbreak — the prices of residential real estate are unlikely to significantly drop and Singaporeans will soon resume property buying/selling after COVID-19 begins to subside.

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The Property Market Index Q1 2020 also noted that new launches this year that are located within walking distance of an existing or future MRT station will continue to perform above market expectations. 

With new MRT stations on the Thomson-East Coast Line (TEL) becoming operational from January 2020, we expect to see an upswing in the asking prices for resale private residential properties within walking distance from these stations. 

District 25 (Woodlands and Admiralty) and 26 (Mandai, Upper Thomson) will benefit from new TEL stations and are two of the top five districts in the past quarter with the highest percentage increase in median per square foot asking price.

SHOULD BUYERS TAKE ADVANTAGE OF THE CURRENT MACROECONOMIC HEADWINDS GIVEN THAT PRICES ARE EXPECTED TO TAPER? 

T: Despite the looming unsold private housing stock, prices are expected to hold steady as there is little leeway for adjustment by developers who paid the high breakeven price for land purchased before the July 2018 cooling measures. 

To use an analogy, if the cost of flour had gone up, it would impact the price of bread. 

While there are concerns regarding demand in the short term, we are confident that property prices will remain stable in 2020 (possibly a modest 2 to 4 per cent price growth) and there will be a gradual absorption of supply over the next five years. 

That said, buyers should first and foremost consider their needs in their property search and be prudent in their buying decision — calculate their finances and have contingency plans to service mortgage loans in the event of unemployment or an emergency.

HOW AFFORDABLE CAN BTOS OF BOTH HDB AND ECS BE IN THE NEAR AND MEDIUM FUTURE? 

T: The income ceiling of $14,000 per month (which came into effect last September) set by the Housing Development Board (HDB) for BTO flat buyers exceeds the national median income of $9,293. 

This means that about 80 per cent of Singapore resident households are able to purchase BTO flats, subject to other eligibility requirements. 

Additionally, the Enhanced CPF Housing Grant (EHG), which quantum ranges from $5,000 to $80,000, targets first-timer families buying BTO flats particularly.

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The Government also provides subsidies via the concessionary pricing scheme for new BTO flats. The level of subsidies is pegged to the flat type, such that buyers of smaller flats receive more subsidies.

Since 2011, the Government has taken significant steps to stabilise new BTO prices by delinking them from resale flat prices. 

As such, HDB prices new flats on a cost-plus basis. This approach protects BTO flat buyers against price spill-overs from the possible volatilities of the resale markets and HDB can ensure that BTO flat prices are affordable.

Executive Condominiums (EC) are typically priced 15 per cent to 20 per cent lower than private condominiums and meant for those who have a higher income (income ceiling of $16,000) than BTO flat buyers but may find buying a private condominium a stretch to their current financial resources.

First-time EC buyers are also eligible for the CPF housing grant to help finance their purchase.

simeonang@asiaone.com