Top reductions on Top-end London properties

As the number of new high-end luxury properties in London‘s prime and popular fringe districts such as Central London, Nine Elms and Earls Court climb, developers are feeling the pressure of a slump in demand and international investments.

London ApartmentDevelopers are finding that they now have to pursue overseas buyers more actively than before. They are also looking outside for cheaper development loans as there has been a 13 per cent fall in international buyers last year, and sales have fallen 19 per cent. Funding for some developments may be running into trouble and developers are looking at offering discounts for bulk purchases in order to secure monies for the construction process.

London Apartment2Higher property taxes have dulled some of the shine of high-end London apartments and land values have fell 1.1 per cent by the last quarter of 2015, compared to a 6.4 per cent gain in the earlier part of the year. What will this year hold for the industry? Property analysts are hoping developers find the funds they need to finance more extensive fringe projects. There are however doubts about whether bulk buyers willing to take up more than 100 units will be easy to find as most of these newer projects are not designed for the rental market.

Right time for luxury (property) shopping?

With the current property market lull, developers are offering many larger-sized luxury properties at discounted prices. Prime central district properties have also seen less activity as foreigners are buying fewer condominium units possibly due to the higher stamp duties and taxes levied on them. Could this be the right time to suss out a good investment deal?

Twin-Peaks3

Photo: Twin Peaks condominium on Leonie Hill

In fact, many developers are looking at doing bulk sales on their unsold stock in order to prevent paying the penalties such as  the Additional Buyers’ Stamp Duty (ABSD). Property funds may be the most likely buyers, though individuals or groups of individuals eyeing specific projects could also jump on the opportunity.

City Development Limited (CDL) for example has been trying to sell one of the two 24-storey towers at Gramercy Park and OUE is doing the same with their Twin Peaks development. Prices for Gramercy Park, a freehold condominium project, is expected to hover around $2,600 psf and will be ready for occupation by the Q2 of this year.

Though almost 92.9 per cent of their 174 units have been sold by last year, they still have a number of unsold stock to sell by 2018. Developers can file for extension of their Qualifying Certificate (QC) which allows them a bit more time to sell their stock. But developers will also have to weigh the charges and ABSD against the discounts they are able to provide buyers with bulk-buy offers.

 

Private property market- Volume versus price

Stock of unsold private property units have been falling. At 25 per cent lower this year as compared to 2013, the improving take up rates could be chalked up to pent-up demand from buyers and lowering property prices.

Sol AcresPhoto: Sol Acres Executive Condominium

But the question remains, could sellers and investors expect a quick turnaround next year with profits and rental yields increasing? Resale property prices have dropped 6 to 11 per cent since 2013 and while sales volume has risen, the property rental market remains quiet. In fact, rents have softened this year and with the impending boom in supply of completed residential units next year (including executive condominiums or ECs and HDB flats), the rental market may be facing competition that’s tougher than before.

There are currently more than 300 unsold units the executive condominium (EC) market in projects such as Sol Acres, The Criterion and The Terrace. Developers of these and other private projects with unsold stock might be pressured to move these units next year as some may face restrictions such as the Qualifying Certificate penalties and the Additional Buerys’ Stamp Duty (ABSD). The latter not only affects developers, but also buyers who are also further restrained by the Total Debt Servicing Ratio (TDSR).

The PanoramaPhoto: The Panorama

Prices of developer-sold new properties have already been on the decline this year. At The Panorama in Ang Mo Kio, prices fell fromr $1,343 psf to $1,226 psf within 10 months. Similarly in Sims Urban Oasis, prices have dropped $112 psf to $1,285 psf in 9 months.

2016 begins in less than a month, and everyone will be keeping a keen eye on the first quarter for the tone it sets for the year ahead.

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.