Insight - Singapore’s housing party is on. Watch the clock


Hot pursuit: The Toa Payoh housing estate at night. New apartments are in demand with one project selling 90% of its units in a single day virtually over Zoom. ─ AFP

FROM Munich to Frankfurt, and Toronto to Hong Kong, housing bubbles have either grown bigger through the pandemic or refused to deflate. Singapore’s property, though, is in a sweet spot of affordability, making it a likely target of an investment frenzy.

But dispel any illusions: The city-state has a habit of breaking up speculative parties long before they pop. That doesn’t mean that everyone has to go home just yet. The cue for that may come from so-called en bloc sales, where builders buy out all existing apartment owners and redevelop the land for newer, bigger projects.

After a two-year hiatus, the ingredients for this market to spring back to life are in place. A block of 10 terrace homes and a bungalow sold for S$32.8mil (US$25mil) in November.

Compared with the previous cycle of 2016-2018, when S$19bil of bulk deals were concluded, it’s still early days. But once homes become ATMs, the government may not wait too long to rein in the fervor.

The tiny island is ever-cautious about not letting the price of land – a precious commodity – move too far away from economic fundamentals. It may be extra vigilant this time around. Hong Kong’s future as a global financial centre is under a cloud as China tightens its grip on affairs.

Post-Brexit London comes with its own uncertainties. At the same time, vast pools of cheap money are sloshing around everywhere, looking for yield in everything from stocks to cryptocurrencies.

Covid-19 fiscal and monetary stimulus pushed up real, or inflation-adjusted, housing prices in advanced economies by 3.7% on average in the second quarter, the fastest year-on-year growth rate since the end of 2016, according to the Bank for International Settlements.

Singapore’s private home prices jumped 2.1% in the final three months of the year from the third quarter, their fastest expansion since the government put a stop to the last en bloc cycle in July 2018 by raising duties on buyers and tightening lending standards.

New apartments are in demand. One project sold 90% of the units it released in a single day virtually, over Zoom. Interest rates are at rock bottom in the prosperous Asian financial center, social distancing norms are easing, vaccination has begun, and the economy is forecast to expand between 4% and 6% after last year’s recession. Meanwhile, the government is keeping a lid on its own land sales programme, stoking the industry’s hunger for raw material as its inventory of finished product begins to deplete. “All this is positive for en bloc demand, ” said Jefferies analyst Krishna Jyoti Guha.

According to Cushman & Wakefield, the last time unsold homes dwindled, to 23,000 in 2016, a new cycle of collective sales began. The third-quarter stock was 26,600, and already sprawling mansion in the city’s outskirts has been offered for redevelopment. Once developers start throwing money at condo owners to move out, the game will truly be on.

Not for long, though. Singapore’s residential property is a global asset class – with local political dimensions. The government has to keep a keen eye on public housing, where things are already heating upa tad too fast. Prices of state-built Housing Development Board (HDB) apartments, where most Singaporeans live, surged 4.8% last year in the resale market, their fastest growth since 2012. The rally may extend into 2021.

A little bit of a wealth effect may help lift spirits after last year’s ennui and despair. But Singapore’s best bet for rejuvenation lies in its vibrant startups, especially in the fintech industry.

If entry-level apartments become too expensive for younger graduates, there will be be mass grumbling and unease, especially in a weak labour market. Before the pandemic, Singapore’s income inequality was high, but it was falling, thanks to liberal fiscal support for low-income families.

Property mania could breed fresh inequity by skewing the distribution of assets away from those whose livelihoods were damaged by the pandemic.

After all, it’s the Singaporeans who came out largely unscathed – and foreign buyers for luxury and city center projects – who will provide developers with the bulk of demand for the 10,000 to 15,000 condominium units that developers may release this year, according to the Jefferies analyst.

If actual take-up is slower than expected, developers will pace their launches. ─ Bloomberg

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. Views expressed here are his own.

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