2016 will remain intriguing even as it starts off with a bang, albeit negatively, in the equity markets.
But there are potential beacons of hope for housing this year. On the watch list are:
- Investors looking for alternatives amid stock volatility;
- Manageable rate hikes;
- Lifting or tweaking cooling measures.
- MRT Downtown Line 2 completion;
- Improved housing affordability after more than 2 years of price declines.
1. Volatility in the stock market will send investors scurrying for alternatives
Global stock markets have been volatile in the opening weeks of this year. A second crash in China’s stock markets since last summer caused the Straits Times Index to fall 4.6 per cent in the first week of trading, and the loss in the local benchmark has piled up to 12.1% this year as of yesterday’s close.
The main causes of the Chinese crash are a retail-investor-driven market, China’s poor economic data, as well as its heavy-handed interventionist policies. There is no immediate reprieve in sight — demand for Chinese goods remains stubbornly sluggish, with the Purchasing Managers’ Index for the manufacturing sector falling below 50, indicating contraction in factory activity. This may send investors here scurrying out of the equities market and into alternatives. While some may turn to traditional safe havens, such as gold, others may eye the property sector, where prices have declined for nine straight quarters.
2. The Fed rate hike impact has not been as bad as most people expected
The United States Federal Reserve raised its benchmark rate by a gradual 0.25% last month, which has led to small and manageable rises in the Singapore Interbank Offered Rate. The much-prophesied doom-and-gloom scenarios in which thousands of homeowners would find their mortgages unaffordable, never came to pass.
There is no denying that interest rates will continue to rise — the US economy has mostly recovered, and the Fed will not risk runaway inflation by keeping rates low for too long. While mortgages will be more expensive in the coming years, a lot of the fear has been taken out of the rate hikes because interest rates have proven to be more than manageable.
In 2016, investors may latch on to the fact that, even with higher property loan rates, rental income and capital appreciation in land-scarce Singapore more than make up for it.
3. Optimism in the lifting or tweaking of Cooling Measures
Although this may be pure speculation, many analysts believe the Government will modify or lift some cooling measures this year. BNP Paribas predicts a 7% to 10% housing price drop in the next two years, even though prices have already fallen for nine straight quarters. These signs suggest that cooling measures are the only thing holding property prices down, as fundamental demand for Singapore property remains strong. Those low prices are artificial.
4. Downtown Line 2
Opening of Downtown Line 2 (DTL2) in the Bukit Timah area last month with 12 new stations:
• Bukit Panjang | • Cashew | • Hillview | • Beauty World | • King Albert Park | • Sixth Avenue |
• Tan Kah Kee | • Botanic Gardens| • Stevens | • Newton | • Little India | • Rochor
Running through the heart of Bukit Panjang to the school district in Bukit Timah, the DTL2 line has
resolved accessibility issues for non driving residents living in these areas like Sixth Avenue. This will certainly create new interest and boost investment value for properties along the line.
5. Buyers previously priced out of the market may now find housing affordable
If you could not afford a condominium back in 2012, the price slide in recent years is fantastic news for you. The prices are still falling and the only thing you need to guess is how low they will go. This is, of course, what the cooling measures were intended to do in the first place: Make homes more affordable to Singaporeans.
Meanwhile, current property investors do not have to fret if they take the long-term view. Once prices are low enough, the buyers will come back, because again, fundamental demand remains strong. It is not impossible for that to start happening in late 2016, as prices are already looking attractive to some upgraders.