There is a lot of unsold condos in Singapore way before Covid-19. To be exact, 31,948 units as of 30 Sept 2019, according to the Urban Redevelopment Authority. “Sales have averaged about 2,500 homes per quarter… and at that rate it will take almost four years to clear the backlog, “according to Ms Christine Li, head of research for Singapore and South-east Asia at Cushman & Wakefield. (Source: Bloomberg & Straits Times)
Back then things were already gloomy when Ms. Li estimated four-years-to-clear. With the onset of Covid-19, our 1st quarter growth was -10.6%. (See GDP growth chart above.) Remember most of our trading partners were largely unaffected by covid-19 before mid-February. Now both the US and EU are severely afflicted. Economists expect more to come before the bottom.
With an Oversupply of Condos and a Global recession. It makes simple work to guess where Condo prices are heading to in the first half of 2020 — Down. Why then are sales price not reflecting, yet?
There is always a 3-6 months lag effect in a recession. Companies continue to fulfill contracts signed a year or two ago in advance. People hang on to their jobs for a couple of months, before making a switch to another industry with deep pay-cuts. On the other hand, developers have committed to high en-bloc prices in 2017 to early 2019, pricing lower would result in hefty losses incurred via land acquisition, redevelopment charges, construction and financing costs. Therefore they hold on to their high selling prices.
As a result, recent launches have done poorly. The number of units sold are less than 25% of total units in many of the launches. (See figures circled in red above.)
More Condo launches are projected this year, while the pool of buyers remain unchanged. The odds are against the developers. I wonder if some accounting valuation is fueling their “hunger holdout”. Or maybe the project was mostly funded from pocket, rather than bank loans.
Again, patience and skillful negotiations are means to reduce the selling price. Surely, one among the flock will be willing to cut profits (or losses) for an early exit. I would not be surprised if more follow the example thereafter.