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No exemption, all countries stumbled from economic devastation effect of the violent Covid-19. The official vision for Gross Domestic Product(GDP) of Singapore for 2020 dived again originally from -1 to -4% down to 4 to 7% as of May 26th, signifying the extreme recession ever experienced after winning its independence.
The GDP defines as the sum total value of the goods and services yields from a country’s economy in a particular period of time. The negative GDP numbers are an indicator of uncontrollable economic recession.
For the record, Singapore has never documented shrinking its GDP above –3.1% in a span of one year, way back in 1964.
Singapore’s last documentation for a whole year round contraction was during the era of dot-com of 2001 when the growth subsided by 1.1%. It was Singapore’s worst recession after gaining its independence, the Asian financial instability, 1977- 1998, the GDP sank by 2.2%.
As per the International Monetary Fund (IMF), Asia will have zero economic progress this 2020. The worst Gross Domestic Product (GDP) performance ever happening in the continent of Asia in sixty years.
How can a -7% Gross Domestic Product contraction influence the world of the property market?
On the day when the Ministry of Trade and Industry (MTI) promulgated the adjusted GDP outlook, the government of Singapore took the opportunity to take a step to save jobs and build up the economy out from the 2020 fourth budget, a Fortitude Budget of $33 billion.
Overall, the Singaporean government pulls out from past reserves thus allocating the unexpected $92.9 billion to the economy, almost 20% of the 2020 GDP.
Heng Swee Keat, the Deputy Prime Minister, announced to the public the fragile supplementary budget, alerting that Singapore should be ready for difficult times ahead. This could last up to 18 months until such time that a Covid-19 vaccine comes up.
For the moment, the country has no choice but to embrace the new normal.
But can Singapore’s property market survive amidst an unexpected recession? Let’s evaluate the basics.
As a Property Buyer, how would a deep recession impact me?
Let’s go with the good side first. In the present situation, buyers having stable jobs such as doctors and engineers are a bit of an advantage because the entire property market is suffering and manifesting some weakness. Buyers are currently grabbing the chance of discounted home mortgage interest rates.
As the law of demand and supply says, the lower demand is equal to lower prices, as long as supply doesn’t go down. Covid-19 surely decreases the set of buyers: such as those into wait –and – see mind setting or simply for those who can’t afford for now because of their income which is devastated by the Covid. The less or even absence of competition among buyers will pull you in the position to agree on terms or negotiate, in terms of units or developments in exceptional attributes.
However, never wait too long, but only if you have shortlisted potential properties. Recently launched condos are a great example. As a whole, a supply glut takes place but a finite number of selected units could easily be taken advantage of by wise buyers on the same level as you.
If you have been affected by this unexpected event, take into consideration a proportionally reduced budget and keep in mind the following tips:
- Consider keeping the price of a unit to 5x the yearly combined household income of the family
- In relation to the above, to calculate, utilize a conservative version of earnings (paying prior to your current promotion)
- Refrain from maxing out the Total Debt Servicing Ratio (TDSR), which often happens when you are on a car loan
- Be sure to have the equivalent of six months of emergency savings after paying your down payment
As a Property Seller, how would a deep recession impact me?
Honestly, you will find that it takes so much time to sell any property even if the resume of in-person viewing is possible. The usual 3-month time to catch a buyer can certainly go up to six months now.
Set a sensible asking price even if you’ve got the holding power and include a time extension. For instance, someone offers 5% less than your set price but still yields you revenue, contemplate accepting it then wait for a much higher offer which is a bit impractical since there is a huge potential for the market to soften in the following months.
If you are in the middle of financial instability, perhaps you may want to defer your mortgage, or maybe put up your extra rooms for rent, rather than downgrading or putting it on sale. Talk to your financial advisor for feasible options.
Take extra precautions when selling your properties to prevent you from having a negative sale that could potentially ruin your financial status.
As a Property Investor, how would a deep recession impact me?
If you only depend on rentals as your income, you need to anchor tight. The supplementary budget benefits most Singaporeans, but it’s possible that we will be witnessing a crowd of ex-pats with corresponding pay cuts this recession, with a few who will be retrenched. Core Central Region developments are pricey rentals that will certainly fall along with rental demand (FYI and ex-pats are requesting cuts to their rent).
Comparatively, out-of-the-city properties perhaps may begin to appear more attractive to investors, such as leasehold developments at a lesser entry price. The recession may also trigger potential upgrades from some HDB owners, unravelling their HDB flats’ rental potential while moving on to a much cheaper condo (specifically flats that are situated in a high rental location).
It looks more appealing to own and open to renting out properties to those working under essential sectors compared to office-bound expats. These properties are ideally further from the CBD and are closer to catchment areas like universities, hospitals and industrial estates.
But it doesn’t mean it’s game over for major district homes. A Chinese billionaire spent a staggering $28 million on a penthouse unit located close to Orchard
The bulk of high-value acquisitions were deemed to have fallen during the recession but are still being sold provide these units are seen as safe-haven investments among so-called “buy-and-hold” property investors.
Property checkout: Ritz Carlton Residences
How much would the real estate property prices fall?
Based on the chart, vividly shows the indicator which corresponds the majority with dropping private development cost is the GDP per capita, which means GDP/ population of the economy.
Prices on resale HDB, seemingly have a vague association to any indicator. But it is remarkable that during the worst predicament, the chart clearly illustrates ( 1997 to 1998, Asian Financial Crisis), and both HDB plus private homes dived in tandem.
In every recession, it is expected that the Gross development Products per capita ideally drops greater than GDP. The reason behind this is due to the population of the country that increases every year thus causing GDP Per Capita to go down in a scenario where GDP remains unchanged. (0% change).
The chart illustrates that every time the GDP per capita dropped, prices on private real estate property of Singapore drop also.
During the past 30 years, three dips over GDP per capita, 1998, 2001, 2008 until 2009. In all three scenarios, the URA Private Residential Price Index dived. The Index ( private home prices) fell an instalment -29% during Asian Financial Crisis, 18% in 1978-1998.
With GDP per capita foreseen to fall this year, expect to witness a double-digit fall in private property housing prices.
A Yes and a No. It is Yes, due to what history been telling us and No because of the valid reasons:
Firstly, the consecutive cooling measures for the whole year halted the private entities of the property market over runaway growth of prices, thus the intensity of a fall would somehow be lesser than 1997-1998, down to 2001 and 2008-2009.
Secondly, the predicament of 1997-1998, 2008-2009 were crises influenced hugely by bubbles of real estate, thus the recent crisis is influenced by Covid -19 pandemic. Property observers will be consoled realizing that the two, HDB and private property prices acted hugely during the dreaded SARS and outbreak of H1N1.
Thirdly, the government has implemented legislation and policies that serve only to preclude a plunge over property prices ( additional wider policies serve to secure employment and benefits households):
- Giving chance for homeowners to postpone repayments of home loan for a whole year
- Protecting deposits made by property buyers over developers
- Stretching ABSD remission timetable to twelve months instead of six months thus both homebuyers and the developers benefited.
If highly needed, we believe the Singaporean government will stand with more and thorough remedies to cushion the drop of real estate property prices in these trying times of deep recession.
So our take on the impact of the -4 to -7 crisis of the property market of Singapore:
- Private real estate property market: Following the 1.2% price drop in the First Quarter of 2020, a further 5 down to 11% fall off of home cost in 2020. Luxurious, high-end, residential properties are likely the ones to experience bigger downward price coercion.
- HDB resale property market: A drop, in lesser magnitude over the private real estate property market. (HDB prices remains unchanged during the first three months of 2020)