Warnings have been issued by MAS (Monetary Authority of Singapore) regarding recent development within the real estate market which is increasing costs and could result in the market’s instability. They believe that developers should show caution in regards to supply and demand, population, and possible increase of interest rates.
The selling of government land is predicted to add more than 20,000 new units over the next 2 years. Concerns are based on the number of private housing developments that have already doubled over the past year. There is a great concern there could be far more unsold units or uncompleted units that will require approval by the end of the third quarter.
MAS has stressed that population growth has slowed down and whether the increase of vacancies can be absorbed by the market. Should too many units remain unoccupied, there will be an abnormal imbalance that could very easily cause a spiral in prices for both rentals and purchased units.
The central bank is encouraging developers to take into consideration the increase in private housing, their bidding practices for land, the lack of prospective buyers, and the increase in the interest rates in the very near future. Banks are encouraged to provide appraisals that are realistic that can be substantiated while maintaining their underwriting practices.
MAS has conceded that risks might be a little less due to a stronger global economy but financial institutions, corporations, and households should remain on top of the risks that could be affected by rising interests rates and the overexpansion taking place in the development market.
There are properties that have come on the market this year that have increased in sales over the past few quarters but what will happen in the third-quarter is still unknown. There have been a few properties that were on the market and purchased by foreign firms.
The National Development Minister stressed his concerns that are being reverberated by MAS. There is a need for developers and buyers to show care. Some private residential properties picked up in the last quarter with an increase of 0.7% in the price index after experiencing 15 quarters in decline. There has been very little change in the rental markets that also felt declines over the past 15 quarters.
In the meantime, developers are participating in further bidding for various sites which is believed to be caused by huge sales over the past 10months which are greater than all properties sold in the previous year. New home loans have increased on an average of 3-billion each month in 2017 which is significantly a great deal more than in 2016.
Population growth has been rather light, down from 3% in past years (2007 to 2012). The rental market is taking a huge hit with vacancies rising to 8% in the third-quarter compared to only 5% in 2013. Over the past decade, the average has hovered around 6%.
In the meantime, MAS, the Ministry of National Development, and Ministry of Finance will closely watch the development of the market and try to maintain stability when necessary. Whether the trend will remain the same or the market will significantly shift due to the rise or decline in population while supply and demand are yet to be seen.
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