Views 02 July 2020

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Will there be a ‘Fire Sale’ due to Covid19 Pandemic?

Private property price index down 1.2% in 1Q2020
According to the caveats lodged with the URA, total transaction volume of private homes in 1Q2020 is approximately 22% lower than in 4Q2019

2Q2020 property prices have dropped another 1.1% from 1Q2020.

Have met with a number of buyers who ask me if there is a fire sale due to Covid19.

Let’s look at how ‘likely’ will there be a fire sale in Singapore Property

For that we first look at since 2011, Singapore Govt had come out with various ‘cooling measures’, to name the more important ones:

  1. Additional Buyer Stamp Duty, to discourage those with lesser holding power to ‘over-leverage’ when buying 2nd or more properties.
  2. Seller Stamp Duty – to discourage ‘flipping’ to profit from selling the properties within a short span (currently 3 years), re-enhancing the view that properties are for long term investment or for long term own stay.
  3. TDSR – Total Debt Servicing Ratio, similar to point 1, to discourage over-leverage of buyers so that they can service the mortgage together with their other unsecured financial commitment.
  4. Adjustment of Loan to Value mortgage where the potential buyers have to come out with more cash into the property. And for 2nd or more properties, the cash equities portion will be more.

These measures are what the MAS mentioned is “to keep Singapore property prices more in line with the fundamental of Singapore Economy”

If we look at the points mentioned above, it affect the Holding Power for investment properties and or own-stay properties.

In view of current Covid-19 pandemic situation, even medical experts do not know how long it will last before it ends, not to mentioned economic experts not knowing how long will it take for economic conditions to go back to normalcy.

Singapore Govt has come out with 2 assistance packages, the Solidarity and Resilience Package:

  1. Deferred mortgage payment package for up to 9 months;
  2. Assistance MNCs on subsidising up to 75% (cap at $4,500) of the employee’s salary, to keep Singaporeans Residents employed;
  3. Rental rebates to the landlords;
  4. Assistance to the SMEs.

To further deduce the ‘likelihood’ of fire sale scenario, we have to look in depth whether the cooling measures introduced since 2011 to 2017 and the 2 assistance packages, and their ability to lower the negative impact on real economy and the property segment caused by this pandemic.

One important indicator in the real economy is to look in depth – unemployment figures. If this pandemic persist for a longer term (1 to 3 years), there may be more middle-class to be unfortunately displaced and unemployed. Those investment properties bought by this group of buyers, may be the first ones put out in the market for sale, then we have to look at what’s the strength of their holding power to decide whether there will be a fire sale.

For those middle class who bought private apartments for own-stay, under the same 1 to 3 years pandemic scenario, being unemployed, will start to think of downgrades.

As this diminish the holding power of this group, there will be more selling activities. However, whether they decide to go into ‘fire sale’ mode will really depend of their point of entry.

This would be the worst case scenario, we might see more selling activities when there is a diminishing holding power and Singapore Govt assistance package dried up.

Imho, would look more in depth at the above mentioned points, before too early to decide whether there will be a ‘fire sale’ in Singapore property segment.

Please feel free to leave any comments on my view. All views are welcome for discussion.

#realestate #sgproperty #sgrealestate #realeconomy #erasingapore #hexagroup #ERA

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