Chart of the Day: Real estate sentiment sours in Q3 amidst property curbs

The latest index reading dropped from 6.6 in Q2 to 4.0.

The surprise property cooling measures announced in July hit sentiment in the real estate sector hard with the latest overall reading of the Real Estate Sentiment Index (RESI) falling from 6.6 in Q2 to 4.0 in Q3. 

The Future Sentiment Index, which tracks changes in sentiment for the next 6 months, also fell from 6.4 in Q1 to 4.2 in Q3.

"The sharp declines in the 3Q18 sentiments reflect bleak outlooks of the property players, especially on the residential markets in the next 6 to 12 months," Sing Tien Foo, associate professor at National University of Singapore said in the report. 

The subdued scores were a result of higher Additional Buyers Stamp Duty (ABSD) rates which were hiked by 5ppt for individuals and 10ppt for entities along with tightening Loan-to-Value (LTV) limits by 5pt in July. The trigger came after private home prices rose 9.1% over the past year and transaction volumes ballooned on the back of heated demand. 

Also read: Were the government's cooling measures premature?

Respondents cited that the stringent measures may hit developer bidding and buyer sentiment. One respondent lamented, "Developers are so heavily penalised with hefty ABSD that make land-banking decision very challenging and risky - that is why there are growing numbers of unsuccessful en bloc transactions in recent months.”

It comes as no surprise that in the residential sector was the worst hit out of all the real estate sectors with current and future balances in the prime residentials ector plunging from 63% and 58% in Q2 to 58% and 45% in Q3. 

Also read: Will en-bloc fever grind to a halt as Horizon Towers take hit?

On the other hand, the office sector took charge and was the strongest performing real estate sector in Q3 whilst the hotel and serviced apartment sectors displayed mild improvements. The retail sector fell slightly especially in the prime retail segment.  

The RESI is jointly developed by the Real Estate Developers' Association of Singapore (REDAS) and the Department of Real Estate, National University of Singapore.