By David Green-Morgan on July 16th, 2018
The Monetary Authority of Singapore has once again intervened in the real estate market in an attempt to cool recent residential sales price growth which was threatening to bring prices back above their 2013 peak. The recent surge in collective sales, a key feature of the Singaporean market, has prompted the authorities to intervene.
Preliminary data for the first half of 2018 shows that the volume of collective sales has hit almost S$7 billion ($5.2 billion), compared with S$8 billion for the whole of 2017. Also known as “en bloc” sales, collective sales involve residential condo owners banding together to sell blocks to developers for teardown and redevelopment.
Unlike many countries that have seen exceptional residential price growth, the Singaporean authorities have not been shy in using their macroprudential powers to try and limit “euphoria” in the residential market. This decade-long policy initiative has now entered its 12th phase, with additional stamp duty increases on second homes and land purchases, together with lower loan-to-value limits.
Collective sales have dominated the Singaporean market in 2018, both in terms of headlines and transactional activity. Six of the top 10 deals by transactional size according to RCA data have all been collective sales, the largest of which was the sale of Pacific Mansions for S$980 million.
Domestic and regional residential developers have been looking to acquire land parcels more cheaply than bidding for government land sales, which have also reached record pricing. Following these cooling measures, it will be interesting to see how demand from these developers changes, as there are several schemes still on the market.
The largest number of cooling measures came in 2013 which almost put the residential market into bear territory with prices and volumes falling during 2014 and 2015. The market showed signs of recovery in 2016 on the back of stronger economic growth which continued into 2017 as some of the cooling measures were withdrawn. However, the pent-up demand and surge in developer acquisitions in the last two years has resulted in the authorities acting once again.
What we did witness in the previous cycle was an interesting substitution effect, whereby retail investors diverted their attention away from the residential market and into strata office, industrial and shophouse opportunities. Could we see a similar knock-on effect this time? A lack of debt or equity capital is not an issue and the authorities seem less inclined to interfere in the commercial space.