COVID-19: Resilience in the eye of a storm

Currently, with over 150 vaccines being aggressively tested all around the world, countries are caught up in a heated race to put a stop to the ravaging COVID-19 pandemic that has led to massive business windups, long lines of workers at the risk of being furloughed and massive destabilization of major economies. Amidst this unprecedented storm, some are keeping watch for opportune moments to sow their excess cash in the hopes that post-pandemic would offer greater harvests.

Such is seen in the Singaporean property market, with many speculating that property prices would tumble such as the one in the 2008 Global Financial Crisis. We are now more than 200 days past the first arrival of a COVID-19 patient on the 23 January 2020, yet the local property market has yet to show obvious signs of weakening. Here are some reasons on why property market conditions are unlikely to repeat history like in 2008, and what you can likely expect in the longer term!

Lower interest rates

The slashing of the Federal Reserve interest rates to a near zero has resulted in a domino effect on the local banking arena in Singapore. Closely tied with its relation with SIBOR, local banks are now offering all-time low interest rates, which has attracted the attention of many homeowners who have taken the initiative to refinance their mortgages. Refinancing not only benefits individuals by reducing the total sum repayable, but also benefits the banks as there is a lower risk of payment default.

Offered the luxury of lower interest rates payable, this is an opportune moment for some to purchase additional properties for investment, which could cushion the impact of COVID-19 on the property market. Lower interest rates also would also mean that it is less attractive to leave large amounts of cash in the bank which receive lower interest payables annually. Therefore, this encourages savvy individuals to allocate available spare cash resources elsewhere into other investment vehicles such as real estate or bonds.

Governmental policies

Even prior to the onset of the pandemic, the Singapore government has always played an active role in the regulation of the property market with the introduction of cooling measures such as the Mortgage Servicing Ratio (MSR) and the Total Debt Servicing Ratio (TDSR). MSR refers to the portion of a borrower’s gross monthly income which goes to the repayment of all property-related loans, inclusive of the loan applied for. The current MSR is capped at a maximum of 30% borrower’s gross monthly income, applicable only for loans used to finance a HDB flat or an executive condominium bought from the developer directly. On the other hand, TDSR refers to the portion of a borrower’s monthly gross income that goes to the repayment of all debt obligations, inclusive of the loan applied for. The current TDSR ratio is capped at 60% of the borrower’s gross monthly income. The implementation of these measures minimizes the risk posed to financial institutions because there is a lower risk of individuals taking up more loans than they can afford, therefore reducing the risk of debt repayment defaults. This also serves to regulate the property market by reducing rampant uptake of loans and therefore reducing rampant purchase of properties which destabilize property market conditions.

Prior to the pandemic, refinancing was often posed as a difficult task as it was subjected to requirements under the TDSR and Loan-to-Value (LTV). However, to meet the needs of the current situation, the government has stepped up efforts to ease cashflow and minimise debt for individuals. Individuals who seek to refinance their owner-occupied and investment property(s) will be granted exemption from the TDSR and Loan-to-Value (LTV) limits. This works to regulate the property market conditions as individuals are better able to manage their debt obligations, reducing the chances of needing to sell of their respective properties in the bid for cashflow relief and therefore reducing turbulence in the property market.

Job support in a crisis

Under the Resilience Budget 2020 introduced in March, one of the top priorities of the government is to save and maintain jobs. As of July, the total unemployment rate rose from 2.4% in the previous quarter to a current new high of 2.9%, the highest since the SARS outbreak almost two decades ago in 2003. Under the Jobs Support Scheme (JSS) and Enhanced Wage Credit Scheme (EWCS), the government has taken the initiative to co-fund up to 75% of wages for the next nine months for those in the affected sectors based on the severity of impact from the COVID-19 pandemic. By doing so, more are able to retain their jobs and continue to service their debt repayments, again minimizing the risk of defaults.

Generally, market sentiments seem to show no signs of weakening, nor are there many properties going at short-sale prices. However, with the onset of several key political issues arising from beyond our borders such as the Hong Kong Riots and US-Sino’s escalating tensions, Singapore could grow increasingly popular as a destination for investment given her fair and transparent justice system that protects the rights and interests in land regardless of nationality.

In 2019, Cushman and Wakefield reported that a whopping S$1.9 billion was poured by Hong Kong-based investors into the real estate sector alone! As Singapore has just celebrated her 55th year of independence on the 9th of August, let us remind ourselves of how far we have come as a nation. From a third-world fishing village unseen by the rest of the world, to a modern-day metropolis at the forefront of global recognition. What chance does a virus have in the face of a nation that hustles and stays united and together? Stay strong and stay safe Singapore.

Clive Chng
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