Singapore’s housing market is ticking all the right boxes for revival. Except one. Private residential prices are up, quarter on quarter, after almost four years of continuous declines. Land prices are rising, both in government tenders and in bids to redevelop old condos — an activity known as en bloc sales that has picked up to the point where it’s beginning to feel like 2007 again. That year saw a record S$12.2 billion ($9 billion) of deals; 2017 may come close.
In the process, two things are happening: Some capacity is coming out of the system, and some former homeowners, flush with cash, are exploring new options. Throw bank financing into the mix, and the demand side of the residential real-estate equation is beginning to look strong.
Then there’s the disconnect between newly built homes and resale property. As Jefferies analyst Krishna Guha points out, the wider the discount on existing homes versus new stock, the higher future prices, if history is a guide. That discount is currently 23 percent. When the gap widened to 36 percent in 2005, prices rose 50 percent by 2008, Jefferies data show.
So what’s missing from this pretty picture? A one-word answer: wages.
The average monthly household income from work for condominium and apartment dwellers was S$20,213 last year, a small decline from 2015. Divide that income by the median sale price of newly built homes, and the effective wage in terms of housing units works out to 1.6 square meters per month. That’s one-sixth lower than the average for the past 16 years.
For there to be a durable cycle, incomes must rise. Otherwise, politicians will be reluctant to encourage a new round of property mania by removing the myriad restrictions on buying, selling and financing of residential real estate they’ve imposed since 2009.
Even with sluggish wages, the island’s economy, tightly integrated with global trade, may start heating up in 2018. If that happens, the Monetary Authority of Singapore, which manages financial conditions by setting a path for exchange rates, would probably have to allow the Singapore dollar to appreciate against trading partners’ currencies. That would make real estate even more attractive to global buyers, and even less affordable for locals.
Frenzied land buying in Singapore may have more to do with a liquidity glut, which is keeping interest rates low, than with expectations of a sustained rally in property prices.
Already, the frenzied bidding for land seems to be indicating a liquidity glut — Singapore’s 3-month interbank rate has held below Libor throughout this year. That’s one more reason for the authorities to try to damp developers’ enthusiasm, at least until household incomes show a more meaningful increase.
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financialservices. He previously was a columnist for Reuters Breakingviews