Tri-factor sustaining Property market – Government, industry and home owners

As 2016 brings a slew of completed new homes into the property market, developers are concerned about what market restrictions and rising construction and project development costs will do to the industry.

Kallang Riverside

Photo: Kallang Riverside

Even as everyone understands that Singapore is a land-scarce country, and the costs of properties will never be unrealistically low, the current market sentiment seems to be one of wait-and-see. But property prices may never fall too far without affecting the quality of homes. Developers are already feeling the financial squeeze as land costs rise, along with regulatory fees for plans submissions and costs of construction, fittings and furnishings. On top of that, developers are also under the time pressure of selling all their units within a five-year period in order to avoid paying the Additional Buyers’ Stamp Duty. At the moment 3,000 units from the development of properties from land plots sold under the Government Land Sales Programme in 2012 remain unsold, they will reach their five-year deadline next year.

Thus as much as a home buyers may be waiting for even lower prices, new properties launched in the months or year ahead may not be able to lower their prices any further. Moving ahead, how the Government manages its land sales programme, and how developers manoeuvre around rising project development costs and market their products may be key to keeping the industry and ultimately the overall economy healthy and growing.

Should the ABSD be removed?

ABSD – Additional Buyer’s Stamp Duty. Though mentioned less this year as other property cooling measures take over in significance, this nevertheless is a rather big hump investors have to get over should they wish to purchase properties for investment purposes.

Implemented in 2011 by the Monetary Authority of Singapore (MAS), it applies to foreign investors, Singapore PRs (permanent residents) purchasing their second and subsequent properties and Singaporeans purchasing their third and subsequent properties. This and other property cooling measures have successfully curbed the blossoming of a potential housing bubble which threatened to grow in 2009 and 2010. Combined with the Seller’s Stamp Duty (SSD), of up to 16 per cent, property speculation is significantly lower than before. The highly affluent are rarely affected but it has helped keep individuals relatively debt-free.

SantoriniAnother positive that came out of the previous couple of years of policy adjustments is more transparent industry practices. Developers are now required to submit weekly transaction data to the Controller of Housing, including incentives provided to buyers such as furniture vouchers, cash rebates, stamp fee or legal fees absorption and sales volume. That will help project a truer image of how the industry is fairing and what are the actual market prices and keep pricing more realistic.

The restrictive loan-to-value limit has perhaps affected the industry a tad more as it has brought prices down and maintained a level playing field. Whether the government has brought property prices to a level affordable for majority of Singaporeans is yet to be seen clearly, but with the recent election just over, all eyes could be on the new government to see what else they can or will do.

Developers offer more direct discounts

If you’re looking for a good property deal, you could be hitting the market at the right time as developers are now preferring to offer direct discounts instead of indirect ones such as renovation and furniture vouchers and the likes. And the buyers seem to prefer that too.

In a bid to attract buyers back into the property market, developers have realised that with the prevailing property cooling measures, especially the tighter loan limits, it’s the final number that counts. Defraying the total costs through offers of furniture and renovation may no longer seem as attractive to buyers who are now keeping a keen eye on the total quantum prices.

HomeReno1Home buyers are more discerning and aware of how these indirect discounts affect the final sale price and more importantly, the total loan quantum they are able to receive from the banks. Though the rule which states that all discounts, even indirect ones such as renovation discounts and furniture vouchers, have to be declared when applying for a loan were in place since 2002, the banks have only recently been stricter about their checks. What this means for the buyer could be a lesser loan quantum as the amount give in indirect discounts are taken off from the final sale price of the unit, before consideration is given on how much the bank is able to loan.

Now, what developers are doing instead of offering renovation and furniture discounts, are to refurbish unsold units and selling them at a lower price than if the buyer were to purchase the furnishings themselves. Thus, the buyer gets a fully renovated unit at a slightly higher price than an unfurnished one, but at a lower price than if they were to renovate and furnish it themselves. This may be more cost-effective for buyers who are looking to rent out the unit as it saves them money and time.

Home prices expected to decline further in 2015

This year, the rate of decline for private home prices is expected to exceed that of 2014. Last year’s drop was estimated at 4 per cent whereas this year, industry analysts project an 8 per cent drop. This new estimate for the private property sector will put it on par with resale HDB flats. In 2014, the public housing market reflected a 6 per cent drop in prices.

Some market factors from last year are here to stay:
1) Tightened credit market
2) Stricter immigration policies
3) Weakening demand
4) Increasing supply of new homes
5) Higher stamp duties

The Luxurie - near Sengkang MRT/LRT Stations.

The Luxurie – near Sengkang MRT/LRT Stations.

And while interest rates were at a low at a point in time last year, they are expected to rise this year, which makes for an even less favourable environment for a thriving buy-and-sell of residential properties in particular.

This may put a fair bit of pressure on home sellers, who may find themselves having to lower prices in order to make a sale. With developers competing for the same buyers with offers of discounts, rebates and other enticing options, resale private properties might struggle to stand out.

Landlords may also find that it’s a tenants market as an onslaught of homes become ready for occupation this year. The most recent residential projects to come into the market this year include the 622-unit The Luxurie and 590-unit The Riversound Residences in Sengkang.

Coupled with a number of new launches planned for this year, and fewer foreign buyers taking the bite, the only properties which may remain popular are mass-market homes in locations close to MRT stations, schools and shopping malls.

Downturn for Downtown homes

The luxury property market has taken a downturn as homes in the downtown areas take a hit. Transactions were still taking place, and there were homes being resold, but an increasingly number of them at a loss. Recent transactions show a $60,000 loss in the resale of a Marina Bay Residences unit just last month. One of the largest differences came from a $342,000 loss from a subsale of a Robinson Suites unit.

eMuch of the competition comes from unsold stock from developers, a dipping rental market and a diminishing expatriate population. The first factor could be the most hurtful to investors as some developers have begun adjusting prices downwards, and even renting out unsold units instead of selling them. This puts up fierce competition for buyers who have originally planned for their properties to earn them the monthly sustenance through rental. Even small apartments and and one-bedders are meeting similar fate.

Downtown home prices have fallen 8 per cent, and properties in the prime districts 9 and 11 have fallen 5 per cent. Ultimately, it may come down to holding power. And learning some tricks of the trade through property seminars and talks could be the best way to safeguard yourself from bad investments.

Luxury apartments – Leased instead of Sold?

As the property market lull continues, developers of luxury properties are finding the going all the tougher. As the number of unsold units loom large in the horizon, some property developers have considered turning their private condominiums into serviced apartments instead.



The only other options are for those with deeper pockets to hold off their launches till the market turns around, or to offer steep discounts. Ardmore Residences is just one of the possible few luxury residential developments whose launch has been held off. Wealthy investors do not seem to be keen on hopping on the market for now, probably in lieu of the tightening measures placed around the housing and finance sectors. Since its completion last year, developers have chosen instead to lease out units at the Ardmore Residences for approximately $25, 000 per month. The Sculptura Ardmore condominium nearby has also not been launched.

Sculptura ArdmorePhoto credit: SC Global.

Although some marketing has been done for the iLiv @ Grange apartments in Grange road, it has not been officially launched as well. At its unveiling in 2010, developers were targeting selling prices of $3, 000 psf. But in the current market, that figure might be unrealistic. There has been talk of the developer, Heeton Holdings, possibly selling the units in bulk to a single buyer at $2, 200 to $2, 300 psf. Developers generally have a window of 2 years after completion of the project to sell off the units. Remaining units are not allowed to be rented out. Since Singapore may require more hotels and short-term accommodation, it may be a new venture should these luxury residential projects near the city centre to be converted into serviced apartments.

68% drop in private home sales

In comparison to 2013’s Q1 home sales figures, the chasm is deep. And so are moods in the real estate market.

Private home sales have been on the decline for some time now. And recent figures are not exactly uplifting. Buyer sentiments are pessimistic, as the loan curbs implemented last year takes its toll on buyers and sellers alike.

Hillford Retirement Home
It has become much harder for buyers to secure loans, with the Money Authority of Singapore’s Total Debt Servicing Ratio framework in place. Buyers can no longer loan as much as they would like, which may place them just out of reach of their target property. The lack of new property launches this quarter has also dampened the mood somewhat. And property developers have been slow in introducing new units into the market as they are now accutely aware of a softer market.

Some properties nevertheless have beat the odds and continued to enjoy brisk sales. Topping the list is the 281-unit The Hillford in Jalan Jurong Kechil. Since its launch in January, units have been completely sold. Next up are a couple of neighbouring properties in Sengkang – Rivertrees Residences and Riverbank @ Fernvale. Most of the units went for an average of $1,000 to $1, 100 psf. Industry analysts are wondering if this could signify that buying power for suburban private properties will now hover around this ceiling.

Rivertrees condoThe rest of the year may see a tussle of prices between new and resale properties. As developers cut prices to make sales, resale home sellers may be forced to face the competition head on.

New home sales up in February

After much news about home sales taking the hit, a rebound has brought some cheer to February.

Mainly lead by new suburban property launches, analysts are hoping that this is a sign of the market stablising. Excluding sales of executive condominiums, the Urban Redevelopment Authority released data showing a 28 per cent rise of private home sales of 724 units as compared to January’s 565 units.

2 launches in the Sengkang area, Rivertrees Residences and Riverbank @ Fernvale, made up majority of the sales. 218 units of the 495-uni Rivertrees Residences were sold at a $1,111 psf median while 211 units were sold at the 555-unit Riverbank @ Fernvale at an $1,033 psf average.

Rivertrees condoThe future however may lie in the hands of the property developers. Depending on their pricing structure and strategies, the buying public may respond correspondingly. Some older projects with units yet unsold, as well as resale units may find themselves competing intensely with lower-priced newer properties. But if recent sales are anything to go by, finding the sweet spot that hits home with pocket-conscious home buyers will bring the crowd back into the market.

Buyers who are looking for a good deal may find themselves searching for less salable units in older projects which may still be worth the investment depending on their location and potential for future development. March may be the turning point of this delicate dance between buyer and developer. What will the month show in terms of sales volume and prices?