Copyright 2015 Global Art Ltd
2016 has been a year of mostly negative surprises, despite starting the year on a relatively upbeat mood, bolstered by the positive vibes from the General Election results concluded in September 2015. We look forward (with trepidation) to what President-Elect Trump will unveil post his Jan 20 inauguration, how Theresa May will handle the Brexit process as well as further developments in the South China Sea, all of which to some extent, will have an impact on this tiny sunny island of ours. To close off 2016, we highlighted some of the key developments this year which had affected the Singapore Real Estate Market below.
Singapore GDP surprises with 1.8% full-year growth in 2016 (which reminded us of that one friend in school who always claimed he didn’t study for his test)
Advance estimates released by the Ministry of Trade and Industry (“MTI”) announced that Singapore managed to avert a technical recession in the fourth quarter as manufacturing output surged by 9.1% on an annualised basis from the previous quarter (after shrinking 1.9% in Q3). On a year-on-year basis, the economy grew by 1.8% in Q4. For 2017, MTI had forecasted full-year growth to be between 1% and 3%.
Private home prices slipped for 13 consecutive quarters
Based on URA’s flash estimates for Q4 2016, private home prices are likely to had fallen 3.0% for the full year 2016 while HDB resale prices dropped 0.15%. These declines were, however, smaller than the respective 3.7% and 1.6% decrease in 2015. The 0.4% decline in private home prices during Q4 was also milder than the 1.5% fall in Q3. A market quick turnaround is not likely though given the weak economic sentiment, rising interest rates and uncertainty in the jobs market. A surprise bright spot in the data was the quarterly price uptick for landed homes for Q4 2016 which had some brokers declaring that the buying has started…
Cooling Measures to Stay
As recently as October 2016 in Minister Lawrence Wong’s COS 2016 speech, he had declared that “…cooling measures have been effective in stabilising the property market. But it’s too early to declare victory and unwind the measures.” We had discussed earlier the various levers which will need to move before the Government will likely consider lifting the cooling measures. Despite an increase in rates (of which the impact on the SIBOR will take a quarter to be fully priced in, other Fed concerns non-withstanding as highlighted below), we still do not see much changes to the rest of the factors.
Fed raised federal-funds range to 0.50%-0.75%
By a unanimous vote on December 14 2016, the Fed raised its federal-funds range to 0.50%-0.75%, its second rate increase in a decade. At the same time, Fed officials said current economic conditions warrants only “gradual increases” in the federal-funds rate. Despite that, Fed officials had penciled in three quarter-point rate increases in 2017 instead of two expected earlier in September 2016 - which means the rates might rise faster than anticipated. It remains to be seen if the Fed will deliver the 3 expected hikes (afterall they sang a similar tune around the same time last year, but “under delivered” in the end).
Thank you for staying with us this 2016
A common Christmas & New Year’s Eve discussion topic at this year’s dinner table was if folks should enter the property market now, given the cooling measures are not going away any time soon (and no new ones expected), weak macro indicators, etc. - property prices should be lower, right? (Sometimes, with a wide eye look, as if to convince themselves of this logic). At face value, if this is an indicator of anything at all, it seems to us instead that there is a ready pool of relatively liquid buyers ready to jump into the market to snap up these “bargains”. A non-scientific quick poll indicates that a “further 5%-10%” decrease in prices from current levels will be sufficient to entice these buyers to buy. We continue to believe there is further room for the Singapore residential market to fall. Sometimes, the best action to take, is no action at all (or consider investing in other segments of the real estate market).
With that, we wish you and your family all the best for 2017.