Leong Boon Hoe, Arcadia Consulting Pte Ltd, Chief Executive Officer looks at how the global pandemic has its stranglehold on the world’s economies and how it has affected Singapore’s private residential market.
The COVID-19 outbreak is of seismic proportions as it affects the health of many nations, it is also fast evolving into an economic pandemic. The virus took away the freedom of movement from millions of people, infected over 3 million individuals and claimed the lives of over 350,000+ globally as of 28 May 2020. The virus has also infected global economies, financial markets and businesses around the world.
The Dow Jones Index tumbled almost 25 per cent in Q1 2020, while the Straits Times Index mirrored with a 23 per cent fall over the same period. Oil prices have collapsed, and the West Texas Intermediate crude contract for May 2020 delivery fell 321 per cent and settled at negative USD 40 per barrel (WTI is one of the three grades of crude oil used as a benchmark in oil pricing). Close to 40 million Americans have filed for unemployment in a little over five weeks, far exceeding the 22.4 million jobs that the United States took over ten years to create after the Global Financial Crisis (GFC) in 2009.
Economists predict a great depression will follow once the virus is eradicated or when a vaccine is found. Goldman Sachs predicted a -24 per cent GDP loss for Q2 2020, citing it as a “sudden stop for the U.S. economy”. The Monetary Authority of Singapore (MAS) has revised Singapore’s 2020 GDP growth, for the fourth time, to between -4 and -1 per cent.
The world witnessed four pandemics since the turn of the millennium: Severe Acute Respiratory Syndrome (SARS) between 2002 and 2004, H1N1 Swine Flu (H1N1) between 2009 and 2010, Ebola Virus Disease (EVD) outbreak from 2014 to 2016, and Coronavirus Disease 2019 (COVID-19) from December 2019 and on-going.
Past pandemics did not bring down the prices in Singapore’s private residential market. Rather, markets retracted as major economic, financial, political turbulence or military confrontations preceded, or coincided with the pandemics. In the case of COVID-19, economic depression is the result. The dot-com bubble burst, 9/11 and the ensuing war in Afghanistan, together with SARS created the perfect storm; H1N1 added to the woes of the GFC brought about by the subprime crisis. COVID-19 strikes when the world is facing significant uncertainties amid Brexit and the trade war between the U.S and China.
Singapore’s private residential market weathered the previous two pandemics relatively well. The Residential Price Index (RPI) fell 2.3 per cent during SARS, and spectacularly rose 42 per cent during H1N1 and the GFC. By restricting movement, COVID-19 has sent the private home market into a pause mode. Three months into the current pandemic, the RPI has eased by 1 per cent. It is too early to tell what might come next accurately, but one expects the private homes market to feel the after-effects of the impending economic devastation.
Governments around the world have pledged unprecedented fiscal and monetary assistance to a sum of more than USD 1.9T thus far to contain the virus, shore up financial markets and businesses, and save jobs. Will it be enough to fill the black hole? No one knows.
Unlike many laissez-faire housing markets globally, the Singapore government actively steers the residential market towards long term sustainable growth through policies. Coupled with land scarcity and consistent urban renewal, the policies have resulted in a tremendously resilient housing market and enabled the population to own homes and make real estate investments.
There is statistical proof that the RPI is resilient. If we take 3Q 1998 (the start of the Asian Financial Crisis) as a start point, the RPI would have returned an average of 16 per cent if an investor bought and held a property for five years, and 50 per cent if it was held for ten years.
Entering the market at its lowest point and exit at its highest is probably more difficult in practice than in theory. Some may opt to hunker down and wait for the economic pandemic to blow over. There are always opportunities amidst a crisis. Investors with the financial means can expect a buyer’s market in the foreseeable future, made even sweeter by interest rates close to zero and a weakened Singapore dollar. This may be the best time to start looking for a property.
Note: some financial figures are reported as of 30 April 2020.
Leong Boon Hoe, Arcadia Consulting Pte Ltd, Chief Executive Officer
Boon Hoe is the founder and CEO of Arcadia Consulting Pte Ltd, a boutique real estate advisory and brokerage firm focusing on the marketing of luxury residences as well as cross-border investment brokerage. With a track record of over 20 years in managing projects and marketing premium real estate in Singapore and key cities in Malaysia, Indonesia, Thailand, Vietnam and Cambodia, Boon Hoe advises clients from the acquisition stage, strategic marketing planning and execution, and divestment.