JUST a short blog after a break of more than two weeks.
My colleague, Joyce Teo, reported that new home sales fell by half to 1,078 units last month from April. This is due to the triple whammy of a jittery stock market, the euro debt crisis and high prices putting the brakes on private home sales, she wrote.
But new home sales only give one of the many gauges of sentiment on the residential property market.
Far more important is the data to be released on the HDB re-sale market, since most Singaporeans stay in public housing. I am waiting to see if last month’s jitters have any impact on HDB resale prices at all.
If I recall correctly, even when we plunged into a deep economic slowdown in 2008, HDB re-sales prices continued to climb, even though any appetite for home purchases should also have been dampened by the grave crisis which the global economy was facing.
But the sharp drop in new home sales is a testimony of how sensitive home-buyers on the private properties market are to the world economy.
Going forward, there is another element for home buyers to worry about – rising interest rates.
It is sad but true that even though the US Federal Reserve has been able to hold interest rates at almost zero, the cost of funds is raising.
This is due to the increased jitters rocking European banks – all big players here – with the governments in their home countries facing the daunting prospects of balancing their books, as investors’ appetite for the bonds they issue dries up.
If these European banks have to borrow at higher costs, they will have to pass on these costs to borrowers in the form of higher mortgage rates, personal loan rates and etc.
With interest rates at such a low level, even a marginal rise will have a huge impact on the rate of returns on an investment – and this may be problematic to the home-buyers who have borrowed on the mistaken – or perhaps naïve – belief that interest rates will stay low forever.
There is another observation which I want to make here.
Another colleague, Lee Sushyan, highlighted on Monday that CapitaLand group president and chief executive Liew Mun Leong paid $3.74 million for a penthouse at The Interlace, a former HUDC site at the junction of Depot Road and Alexandra Road, now being redeveloped by the property giant.
His son Karl and daughter-in-law Heather Lim Mei Ern bought a 2,476 sq ft, four-bedroom apartment on the 16th level for around $2.47 million or $996 psf
Sushyan quoted Ngee Ann Polytechnic lecturer Nicholas Mak as saying that when the property market is hot, directors and their immediate family members usually get onto the VVIP list and are able to pick the choice units. But he also hedged his bets by saying that in a slow property, some directors might buy units, sometimes at a bullish price, to give confidence to buyers and investors.
I am wondering which scenario applies in this case.
But just to stir up some memories, I retrieve an old article from an ex-colleague, Colin Tan, reporting in December 2001 that CapitaLand gave some early-bird buyers a "goodwill" rebate of 5 per cent on the purchase price to compensate for the falling prices of the condos they had bought earlier.
The lucky buyers, who got the rebate, included 24 people who bought apartments at The Levelz at Farrer Road.
"The statement said that among The Levelz buyers who will get a rebate are: CapitaLand president and chief executive Liew Mun Leong’s daughter, Ms Liew Cheng May…and director Lim Chin Beng’s son, Mr Arthur Lim," he wrote.