Conditions are afoot, for a perfect storm. The general economy is worsening, making would-be property buyers very cautious. The financial crisis has also reportedly caused local banks to scale back on lending (and that includes housing loans). Also, a large number of homes (including non-DPS homes) are scheduled for completion next year and will flood the market simultaneously.
ST Dec 20, 2008
10,450 on DPS
Cash-strapped buyers may sell low if they can't get sufficient loans
By Joyce Teo
PRICES in the the already fragile property market could be battered even more from next year if some of the 10,450 homes bought on deferred payment are dumped by cash-strapped buyers.
The danger is that when final payments are due at completion stage, buyers faced with falling values may just sell at fire-sale levels, putting even more pressure on prices.
And a key reason for buyers to dump units is that in today's tight credit markets, risk-averse banks will demand that buyers put in more of their own cash before they will agree to lending the balance.
Take a flat that was bought for $1 million with a deposit of $100,000. The buyer must provide $900,000 on completion but if prices have fallen too far, the bank will not come to the party with a loan for the full amount. So the buyer either dips into his own pocket or cuts his losses and sells - likely into a falling market.
The numbers, revealed for the first time by the Urban Redevelopment Authority (URA) yesterday, are sobering.
Two-thirds of the 10,450 uncompleted homes will come on stream in the next two years - 4,560 in 2009 and 2,540 in 2010.
They were sold from 2005 to this year. That includes a period when many properties were being snapped up by eager buyers with little regard for price.
Deferred payment was introduced during the Asian financial crisis to boost the market, but scrapped late last year. It was blamed for encouraging speculation, as buyers could secure a property for little cash down and then flip it for a profit before a brick had been laid.
Down payments are 10 to 20 per cent with the rest deferred until completion a few years down the track.
To make things worse, the URA said that the 10,450 new homes include sub-sale units. They were likely bought at even higher prices from speculators, who had already flipped the units for a profit.
The figures also show that the homes are spread far and wide - about 4,000 each in the core central and city-fringe areas and the rest in the suburbs.
..... Responding to the news, the Real Estate Developers' Association of Singapore said the figures released by the URA underscored the popularity of the scheme.
It maintained that the scheme was beneficial to the market and reminded buyers that although they can sell their units to other buyers on the market, they cannot easily repudiate sales contracts and return the homes they bought to developers.
Don't forget the Foreign Factor too. In recent years, rental rates in Singapore have been propped up by the large number of foreigners working and living here. In fact approximately one out of five residents in Singapore is not a citizen. If the unemployment rates go up, many of these foreigners will give up their rented homes and return to their home countries.
And if you look at the stock market's performance in the past 1.5 years, you know that many Singaporeans must have lost a lot of their wealth there.
There we have it - bad economy; unwilling banks; oversupply of new homes; a shrinking tenant population; big-time losses in the stock market ... and the DPS issue.
I can't see how this can work out well. (Unless you're planning to buy a property, of course).