Picking off where i last left off, many readers have privately messaged me after reading Part 1 of this article (Factoring in COVID-19, Is There An Oversupply Risk & How's The Market Situation? (Part 1)) and asking about my views on how this will all pan out in the long run.
1st, thank you for following my thoughts and reading my blog. It is gratifying to hear from all of you and your opinions as well.
It is important that i remind everyone that my insights are like crystal ball gazing into the future.
I make no apologies that my opinions are as likely to be right as it is to be wrong as we move into uncharted waters; but my best educated guess relies not on my vested interests as a real estate professional but on my many years of studying market trends, human behavior in up and down markets and most importantly, government behavioral patterns.
I'm an avid analyst fueled by a curious mind always searching for macro and micro data points and explanations that drive market movements.
With the daily negative news outweighing positive ones, you can bet that fear is currently the order of the day and sold to everyone consuming any form of media.
It is hence crucial that we pay attention to market fundamentals to avoid being paralyzed by fear and missing out on opportunities in a crisis.
So with that, take a ride with me to recap key nuances of the market situation and how I see it unfold IF the COVID-19 crisis were to resolve itself in the next few months.
Developers are calling for easing of curbs. Why?
As covered in the previous article, most developers have up to 2022 to 2023 to completely sell out their projects. That's a good 2 - 3 years of time left.
However, over the course of last year, there were multiple calls by developers to ease property curbs especially the 5 years ABSD remission timeline for building and selling projects which otherwise would see them slapped with additional costs for their developments.
There were some quarters too that called for a longer time frame for larger projects with thousands of units.
Despite sales volume being at a pretty healthy level of 9000-ish or so, developers were "negotiating" with the government for more time to sell citing supply glut concerns.
So what's actually happening?
To find out why, my question is simply, who benefits the most when curbs are eased?
Is it the buyer or the seller?
No doubt, that with recent competition and aggressive land bidding by new players, mostly from China, many local developers have had to trim their profit margins from the highs of 20-30% in the past, to much lower 10-15% profit margins today.
And with the curbs adding more pressure to them having to clear stock fast, they aren't in a very comfortable position with the countdown clock constantly ticking in their ears.
But who really benefits if curbs are eased?
Would developers be kind enough to keep prices low when they have alot less pressure on their books or would they keep prices higher with the breathing room they now get?
You have the answer.
Naturally, as business people, negotiation and bargaining are part and parcel and at every juncture possible, developers must fight for their interests. After all, real estate development is a for profit business.
Maximizing profit margins after a hard fought tender to win a piece of land is only wise.
But of course, our ministers aren't buying it as well.
On Feb 7 2020, the Ministry gave some leeway for "substantially Singaporean firms" for Qualifying Certificate rulings to help local firms cushion the impact of the punitive ABSD/QC regimes that prevents land hoarding. (www.businesstimes.com.sg/real-estate/new-rules-on-qualifying-cert-offer-reprieve-to-singapore-developers)