August likely to be inauspicious for home developers-- and not just because it’s Ghost Month

More than superstition, the rating downgrade of US debt and the EU’s continuing credit woes show that now is not the best time to buy houses.

In a statement, Colliers International said that recent developments on the global economic front, including increased risk of a US-led world recession and the resultant volatile stock market, will drag down the already expected low demand for new homes this month. August has traditionally seen weak sales due to the superstition surrounding the hungry ghost festival.

In a statement, the real estate consultant said the 17.3% rebound in new sales recorded in July was likely to have been triggered by “superstitious home buyers rushing to commit in order to avoid the inauspicious period of the lunar 7th month,” which commenced on 31 July.

According to Tay Huey Ying, Colliers International’s Consultant of Research & Advisory, yesterday’s announcement of an increase in income ceiling for HDB flats to $10,000 from $8,000 and the raise in income ceiling for Executive Condominium (ECs) to $12,000 from $10,000 could also affect August’s demand for new homes as some buyers re-evaluate their choices.

“There is potential for new home sales to decline to below 1,000 units in August 2011,” she said.

Home sales in the OCR continued to take up the bulk (54.4%) of new sales in July 2011 followed by RCR (36.8%) and CCR (8.8%). In line with the increased number of units launched in the RCR, developers bagged a total of 510 units in RCR in July 2011, 124.7% higher than the 227 units garnered in June 2011. This was mainly boosted by the debut of two new projects - Skyline Residences and Thomson Grand which contributed to 53.9% of total sales volume in the RCR.

However, in spite of the pickup in buying activity, sales volume still lagged behind launches last month. According to Tay, this is a positive sign that the slew of government cooling measures, including the ramping up supply of both public and private homes, has continued to work to stem buying exuberance.

The consultant added that a mix of continuing economic woes in the West and new cooling measures by the government could prolong the slump in home sales long after the ghost month is over.

She noted, however, that the low interest rate environment that will now last till 2013 “could be the carrot for investors” to step out of the sidelines in spite of the risks.

“The fleeing of hot money from the troubled western nations in search of safer investment haven in the healthier eastern region, for which Singapore is one of the top favourite destinations given her stable political scene and protection from natural disasters could also be another bright spot for the private home sales market,” Tay said.