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What a Covid-19 Vaccine Could Mean for the Real Estate Industry

Source: istockphoto

Covid-19 is not the first pandemic that Singapore’s private residential market has faced. In 2003, there was the Severe Acute Respiratory Syndrome (SARS) outbreak, the H1N1 pandemic in 2009 and Middle East Respiratory Syndrome (MERS) in 2012. The property market suffered a knee-jerk reaction and transaction volumes and prices slumped, but it quickly recovered soon after.

As at the time of writing, the Covid-19 pandemic has infected more than 67 million people worldwide with more than 1.5 million deaths. In late November, pharmaceutical giant Pfizer Inc. announced that their Covid-19 mRNA vaccine could reduce the risk of Covid-19 by 90 per cent. This was followed by a similar announcement from biotechnology company Moderna about their own vaccine which could be available in 2021.

So what does the availability of the vaccine mean for the real estate market?

Market could be in a rebound

First, the arrival of a vaccine could really see the market take off, this according to real estate and economy experts.

The Singapore real estate market has proven to be resilient and has weathered the above pandemics and several recessions. It's safe to say, it's one of the most stable property markets with positive mid to long-term capital growth and preservation.

In fact, even during the circuit beaker (CB) months, sales of new private properties saw a five-month-long buying spree until curbs were introduced in October by the government. Even the HDB resale market saw many buyers flocking back as resale volume surged in the third quarter of 2020.

As the Covid-19 situation in Singapore is pretty much stable, we can look forward to phase 3 of the CB and more businesses can resume and hopefully, the economy will rebound to pre-Covid levels. This in turn would see buyers more willing to enter the market. Despite the current economic downturn, the long-term fundamentals of the Singapore property market remain strong and intact.

If the vaccine is made available soon, you can expect showflats to be re-opened without restrictions and viewings can take place in person instead of digitally. More developers are also likely to launch more projects to meet market requirements.

Another plus point would be the resumption of air travel and that would lead to investors coming in from Europe, the US and other Asian countries. Many overseas investors see the Singapore property market as a safe haven compared to other property markets in the region.

Upturn in job opportunities, rental market

Second, the economic front is also looking good. In a Straits Times article published on 8 December, it was reported that job seekers can look forward to better hiring prospects next year. A survey carried out by recruitment agency ManpowerGroup, revealed that one in five Singapore employers expects to hire more staff in Q1 2021.

Even the rental market will see an uptick as foreigners can travel freely for work or study and they will need to find some form of accommodation. Rental transactions will likely see a spike and that in turn will lead to an increase in rental yield for landlords.

So with the expected increase in transaction and rental volumes, real restate agents will benefit from the increased activity and should begin to prepare for the uptake in business now.

Interest rates

On the flip side, due to the current pandemic, interest rates are at an all-time low. This is in stark contrast to just two years ago which saw four rate increases. In the near-term, mortgage rates are likely to stay low, but if a Covid-19 vaccine were to be released, it would cause interest rates to naturally rise.

Central banks will once again raise rates to combat inflation and the Singapore Interbank Offered Rate (SIBOR) will rise. After all, interest rates rose to close to 3 per cent just a year ago. When the economic situation improves in the future and prices of goods and services soar, interest rates will be increased to discourage borrowing and bring things back to a more controlled level. So for borrowers who have taken on a loan during the low interest rate period, their mortgages and repayment rates will go up for existing and new loans. An increase in interest rates will also see less people benefitting by refinancing.

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