Fears of an impending recession aside, has the Covid-19 outbreak already impacted the Singapore real estate market? Going deep into transaction data, we definitely found evidence to suggest that the pandemic (and the lockdowns) muted buying activity among Chinese purchasers in the first 2 months of 2020.
The background on Covid-19
As early as December 2019, China had noticed a new strain of viral outbreak emerging from the city of Wuhan. By the time it was reported officially on state media on 12 January 2020, netizens in China had already been forwarding messages that broach the probability of a potentially serious new virus coming up in the country, with keywords such as “shortness of breath”, “SARS” and “coronavirus” spiking towards the last days of December 2019. On 31 December 2019, Chinese health officials notified the World Health Organisation (WHO) about a assembly of 41 patients showing signs of a mysterious pneumonia.
As what is now named as Covid-19 began to proliferate, China started the lockdown of cities on 23 January 2020. Even though the lockdowns prohibited tens of millions from evacuate their cities, hundreds of Chinese citizens had already travelled to other nations by air. (Few of them were infected, hence the worldwide pandemic that is ongoing currently.)
Chinese buyers are a big deal for the Singapore property market
Love it or not, our real estate market is shockingly dependent on foreign purchasers, especially those from Mainland China. In 2017, 2018 and 2019, purchasers holding a Chinese passport represented 7.8%, 8.0% and 6.2% of the entire private property transactions in those years respectively, with the lesser percentage in 2019 likely due to the impact of Singapore’s latest cooling measures. It’s also critical to note that these numbers exclude those who bought property in Singapore using another country’s passport, because the wealthier Chinese are notable to hold multiple citizenships.
At this current moment, by far, Chinese buyers frequently make up the biggest percentage of foreign purchasers for private housing in Singapore. Developers hope this strong numbers will help Penrose which is at the city fringe.
It has not been like this all the time. Comparing to 10 years ago in 2007, 2008 and 2009, buyers owning a Chinese passport only make up for 2.3%, 3.2% and 3.7% of the whole private property transactions in those years respectively. The rising spending ability of Chinese purchasers and their growing commercial influence over the years, be it from country hopping serial investors or aspiring Singapore citizens, has changed the local real estate scene. It helps that the reputation and stability of Singapore’s business, economic and political environment remain a massive draw for Chinese purchasers too. We hope this will draw Chinese buyers to the One North Eden showflat when it opens for preview.
So how has the outbreak affected Chinese buyer activity?
With or without a lockdown, a phenomenon as major as the Covid-19 pandemic was definite to shift Chinese purchasers’ mind off of buying a property in Singapore, at least in the close term. To appreciate the impact, we looked closely at transactions for the first 2 months of 2017 to 2020 (i.e. Jan and Feb) and targeted two points specifically:
- Chinese purchasers as a percentage of the total across all rate ranges
- Chinese purchasers as a percentage of the total for private homes sold above S$3 million (i.e. wealthy purchaser sector for luxury and upscale properties)
In the 3 years from 2017 to 2019, the share of Chinese purchasers in the first 2 months of the year has maintained a consistent level of 8.3% to 8.8%. In July 2018, real estate buying curbs in the type of a raised Additional Buyer’s Stamp Duty (ABSD) and lower loan-to-value (LTV) ratio were implemented, and although the general volume of private housing sales dropped in the following months, the statistics seem to display that the purchasing appetite from Chinese nationals didn’t significantly because of the cooling measures. We believe they will be responsible for healthy sales numbers at future launches like Penrose.
The resilience of Chinese purchaser demand is due to of both pull and push factors: they had purchasing power and had solid intent to come into the highly-sought after Singapore real estate market sooner or later, and concurrently competing countries like Australia had levied even tougher restrictions and higher tax disincentives to Chinese ownership of real estate.
In the first 2 months of 2020, we noticed that the percentage of Chinese purchasers dropped sharply to around 4.3% of total purchasers . In absolute numbers, there were 144 units transacted by Chinese buyers in January and February of 2019, as compared to 107 units in the same timeframe of 2020 — a decline of around 26%. The drop for Jan-Feb 2020 appeared at a time when the volume of foreign buys by most other nationalities spiked compared to the same timeframe the year before.
But are wealthy Chinese buyers still in the market despite Covid-19?
Even as general transactions dropped among Chinese purchasers in the first 2 months of 2020 compared to the exact timeframe in 2019, the number of sales for houses above $3 million by Chinese purchasers actually went up from 18 to 24 units. So it can be reasoned that while the coronavirus has kept the average Chinese purchaser away from the market, it has not stopped wealthier clients from scouting out a good buy.
And here is the thing: Once the environment in China improves, wealthy Chinese purchasers could come back to the Singapore property market in hives. The figures of Chinese nationals who splurged more than $3 million to purchase homes in Jan-Feb 2020 is 13.3% of the entire group, which is less than what was seen during the same timeframe in the preceding years.
We believe the drop in proportion of Chinese purchasers is only a temporary slip due to Covid-19. After all, the share of Chinese purchasers for Singapore residences above $3 million has been gradually moving up. When China does get started again, it is a matter of time before it becomes business-as-usual for Chinese purchasers, particularly since residential real estate in Singapore is regarded a ‘safe haven’ in unusual periods. And by virtue of getting ‘advance’ notice of a likely pandemic, savvy China investors who disposed risker assets (e.g. stocks) prior to the virus-caused financial market turmoil (that only truly begun closer to the end of February 2020) might also consider to assign more funds from their released liquidity towards a ‘safe haven’ housing property buy, particularly if worldwide economic recovery is predicted to be prolonged.
What’s in it for local buyers?
It’s no secret that rich Chinese purchasers and developers have been applying upward pressure on real estate prices in the last few years. Even the 2018 cooling measures has not surely reduced their enthusiasm for Singapore private real estate. If anything, how the Covid-19 crisis was managed in China has likely convicted and strengthened the resolve of several Chinese nationals to move house and settle down in a nation like Singapore permanently. They may be staying in the city fringes too, like at Penrose.
For Singaporean purchasers who are in the market, the short-term decline in the number of Chinese purchasers during the covid-19 pandemic could interpret as a rare window of opportunity for local purchasers to possess their dream property (so long as the Singapore economy remains strong and stable). Currently, not only will any uptrend pressure in rates disappear for the time being, there’ll probably be lesser competition for prime units both in the resale and new launch markets, which could expound why Singaporeans are throwing caution to the wind in recently months and attracted to new launch condo show suites. Yes, we do recognize an opportunity when we see one!
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