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?

Luxury condominiums going at lower prices

$2,200 psf to $1, 800 psf.
$3.7 million to $3.4 million.

That’s how far lower the prices for high-end luxury apartment units are going for.

Perhaps it’s a case of when the going gets tough, the tough gets going, at lower prices. It’s no secret that while luxury properties are the creme de la creme for property agents and developers, when investment money is slow in coming, these are one of the hardest to sell.

Hallmark residencesAnd the going looks like it is going to be tough for quite some time more. Property developers are struggling to move unsold stock, and depending on whether their holding power is strong enough, they may be forced to make other moves sooner. There were news earlier on this month that developers are looking to convert condominiums into serviced apartments as the pressure of the deadline to sell looms closer.

At MCL Land’s Hallmark Residences in Bukit Timah, the uncompleted condominium development is already advertising sales of units at discounts of up to $300,000. A 969 to 990 sq ft 2-bedroom unit was originally priced at $2 million but is now at a lower $1.8 million. Since its release of the first 20 units in January, 5 have been sold. They are however planning for a proper launch sometime in the first half of 2014. At the 999-year leasehold St Regis Residences on Tanglin Road, prices have dropped from $4,653 to $2, 349 psf. Of the over 10,000 private homes still under construction in the prime districts 9, 10 and 11, nearly half remain unsold.

Once again the story of low demand versus high supply dogs the real estate industry. With the government’s many cooling measures, a bubble is unlikely to happen especially since loans are harder to get. It will be interesting to see how the property market plans for a rebound.

The Resale HDB flat rollercoaster ride

A year or two ago, the property market was at its peak and now, it seems to be have taken the quick dash down. With the fervent entry of new HDB flats and private properties over the last 3 years, the market is now facing a possible glut. The continuous implementation of property cooling measures also accounted for much of the decrease in activity over the last 2 quarters.

The resale market for HDB flats seem to have taken a dive due to the bumper crop of BTO flats. Photo courtesy of Singapore Tourism Board.

The resale market for HDB flats seem to have taken a dive due to the bumper crop of BTO flats. Photo courtesy of Singapore Tourism Board.

Data from the Urban Redevelopment Authority seems to signify a peak in home supply in 2016. That is when most of the properties purchased in the past 2 years will be completed and ready for occupation. That might mean many will be compelled to sell their existing homes and the resale HDB flat market may then face yet another challenge then. By 2016, 33,290 homes are expected to be completed.

In the resale HDB market, transactions have been at an all-time low since 2005. Prices fell by 0.6 per cent, and sellers may find themselves at the mercy of market demand. Median COV prices are now $10,000 and below. No longer are the days when sellers could command exorbitant cash premiums, which have to be paid upfront.

Most buyers in the resale HDB flat market now are upgraders or PRs. But the pool of buyers may have diminished as buyers may be restricted by loan limits and reduced number of foreigners granted permanent residency. PRs are now only allowed to purchase HDB flats after a 3-year period. Property analysts are expecting interest to rise again after the first half of the year, as low prices bring the buyers back.

4 reasons why 2014 could be a turbulent year for stakeholders of the Singapore private property market

By Getty Goh

Based on the latest URA private property price index (PPPI) flash estimates, we know that the PPPI, which represents the overall real estate price trend, has dipped in 2013Q4.  This is the first dip the market has seen in the last 2 years.

At present, there are numerous views that the real estate market will stay stagnant for some time.  I agree and here are 4 reasons why we think 2014, and maybe even 2015, could be a turbulent year for stakeholders of the Singapore property market.

Reason 1: More new properties are going to flood the market

By now, we already know that there will be a large number of private properties being completed in the next few years.  However, to give you a sense of the numbers, you can see from Figure 1 that the supply of completed properties from 2014 to 2017 is more than 15,000 annually.

To give you some perspective, the total number of private properties in Singapore (including executive condominiums) is 297,689 in 2013Q3.  Based on the projection that there will be 19,302 units completed in 2014, the increase in residential units works out to be more than 6%.  With so much new supply, buyers will be spoilt for choice and this in turn will lead to their reluctance to pay a premium for potential units.

Figure 1: Supply of private residential units by type, development status and expected year of completion as at 2013Q3
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Source: URA & Ascendant Assets Pte Ltd

Reason 2: More resale units can be expected when the 4-year Seller Stamp Duty duration expires

In the last few quarters, the resale volume has dipped quite significantly.  Based on Figure 2, it can be seen that for 2013, the resale volume dropped to as little as 25.6% (in 2013Q1).  In terms of resale volume, 2013Q3 is the lowest with only 1,340 transactions.

Figure 2: Number of units transacted in the whole of Singapore up to 2013Q3
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Source: URA & Ascendant Assets Pte Ltd

Putting things into perspective, this does not come as a surprise as the resale volume is muted due to the Seller Stamp Duty (SSD).  SSD was first introduced in Feb 2010 and policy stipulated that sellers who flipped their units within 1 year had to pay the additional tax.  On 30 Aug 2010, the SSD duration was increased to 3 years.  On 13 Jan 2011, the duration was revised to 4 years.  Based on these conditions, Figure 3 shows the number of transactions for each time period and when they can sell without being penalised by SSD.

Figure 3: Dates that owners can sell their units without being penalised by SSD
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Source: URA & Ascendant Assets Pte Ltd

The biggest unknown is how many people, who acquired private properties in the last few years, do not have the financial means or intention to hold on to their units for the long term.

Nonetheless, I reckon that there could be a sizable number of people wanting to sell their units over the next 1 to 2 years, as many of them are likely to be affected by the Total Debt Servicing Ratio (TDSR) measure.  So how does TDSR affect some owners?  This brings us to the third reason…

Reasons 3:  Owners who overstretched themselves financially will have a hard time securing refinancing

In the past few years when interest rates were low, liquidity was ample and banks were keen to extend favourable lending conditions, some Singaporeans could have over-stretched themselves by buying multiple properties or borrowing beyond their means.

Back then, numerous banks offered low interest rates of around 1.5% for the first few years followed by a spike in interest rates to more than 3% beyond the third or fourth year.  Before TDSR was introduced, these owners could avoid paying higher interests by simply going to another bank to refinance their loans (and get better rates).  However, with the introduction of TDSR, it is now much harder for these owners to get refinancing as the lending criteria has become more onerous.

To provide you with some perspective of how much more instalment an owner has to pay for a S$1milllion loan: based on an interest rate of 1.5% and tenure of 30 years, the monthly instalment works out to be about S$3451 per month, if he does not get refinancing and interest rates increase to 3.5%, the monthly amount payable is S$4,490 per month.  This works out to be an increase of about S$1,000 per month in loan repayment.

Ultimately, owners are now left with a choice of holding onto the property and paying significantly higher interest rates or selling their unit.  Looking at how much more an owner will have to pay to maintain his unit, it is definitely conceivable that those who had stretched themselves will consider selling their units to minimise their financial strain.  Naturally, the next question is whether there are still property buyers in the market and how many there are.

Reasons 4:  The pool of potential property buyers has shrunk significantly

Taken in totality, the various cooling measures implemented by the Singapore government are intended to achieve two things – prevent property speculation and encourage financial prudence by making it hard for those who already own one property to buy another.  In other words, if you are Singaporean and a first time buyer, you are almost not affected by the measures and can buy under favourable conditions (i.e. 80% financing as well as pay only 5% for your deposit).

Hence, to see how the market will perform in 2014 and beyond, we should try to determine how big the pool of first time buyers is. Logically, if there is a huge pool of first time buyers, we can expect property prices to remain stable or even increase.  Conversely, if the demand is not there, it will be unsustainable for prices to remain high for long.

To answer that question, let us take a look at the home ownership rate for Singaporeans and Singapore Residents.  Based on data from the department of statistics, it can be seen that the home ownership rate in 2012 is 90.1%.  In other words, 9 out of 10 Singaporeans and Singapore residents own at least one property (i.e. their home).  Only 1 out of 10 do not currently own their home and can potentially still buy properties without much restrictions.

Figure 4: Home ownership rate of Resident Households
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Source: Department of Statistics, Singapore & Ascendant Assets

Conclusion

Based on this analysis, the outlook for the real estate sector is definitely not as rosy as it used to be.  In fact, the warning signs have been around for some time and we have been cautioning buyers since Sep 2013 that the market was reaching a turning point (http://www.iproperty.com.sg/news/7599/Weekly-real-estate-insights-from-Ascendant-Assets-Pte-Ltd).

That said, I concede that I may have made some assumptions and oversimplified some considerations in this article.  Moreover, the situation could change overnight if the government steps in to lift some of the cooling measures.  Nonetheless, this article is meant to put some context to the lacklustre market performance that we have been seeing for the past few months.

I have definitely misread the property market before and this is one occasion where I am hoping my assessment is wrong.  But looking at the current situation, I reckon that we are still in the early days of a government induced property market malaise.  So expect a bumpy road ahead…

Mr Getty Goh has a Masters in Real Estate and a Bachelors in Building from the National University of Singapore. He is a director at Ascendant Assets and the Co-founder of CoAssets.com, South East Asia’s first crowd funding and purchase website. The views expressed are his own. For those who wish to know more, please email him at Admin@CoAssets.com.

2013 closed with weak demand for resale homes

Although a 0.1% rise was registered, the last quarter of last year saw a resale private home market which was relatively quiet, and where demand was low. But industry experts were none too ecstatic about the rise, with most recognizing that this might be a mere “technical rebound” which will not be sustained.

The Montana1Homes in the central region which sold above the median market prices could have accounted for this rise in numbers. A few units at The Montana in Jalan Mutiara for example, sold at $1, 832 to $2, 130 psf. The market prices were at an average of $1, 600 to $1, 800 psf. Another high-floor unit at The Orchard Residences also went at $4, 312 psf, above the $3,600 psf market price, possibly due to the rarity of the unit.

The largest dip came from the shoebox apartments sector. For these small apartments of less than 500 sq ft, which were the best sellers of earlier in the year, a 0.6 per cent drop could signify a saturation of the market with these types of units, and where rental demand may not yet make up for the sheer number in existence. As new non-landed residential developments flaunt their remaining units, resale units in the suburbs may be forced to lower seller expectations. Will 2013 purely be a buyers’ market?

Drop in government land supply

And this will happen come 2014. As numbers in both public and private property markets signal a soon-to-be oversupply, developers are cutting back on the number of land plots they bid for, and the authorities are getting the hint and hence cutting back on the supply of land.

A wise move perhaps to prevent a property bubble, though the first major move could be the tightening of loan limits implemented middle of the year. Only enough land for 11,600 new homes will be released in Q2 of 2014. That is 17.3 per cent lower than Q2 of 2013. The warning signal came in November from the Real Estate Developers’ Association (Redas) and it seems the Ministry of National Development (MND) has kept their ears open and made an announcement on Wednesday regarding the reduction.

THe CrestEven so, the market can expect 65,000 new residential properties to enter the market within the next 3 years. And this is expected to fulfill the housing demands of the population without sacrificing sales figures. 8 plots of land will be put up for sale in the first half of next year, and most of them will be in suburban areas such as Yishin, Sembawang, Sengkang and one at Prince Charles Crescent in Redhill next to The Crest. These plots will also yield some 2, 2000 executive condominiums (ECs).

The market will see the building of more executive condominiums, which may slow the private property market down a little, but still keep the number of new homes in the black. However, these hybrid homes will become available in the open market in 5 years’ time and this slowing down of supply in this sector may be a well-timed move.

7th on the list – Asia-Pacific’s Property Investment Cities

Singapore was 4th on the list this year, but for 2014, the prospects may seem a little bleaker. But perhaps only because other cities in the region are catching up more quickly. Industry analysts are putting it up to the oversupply of properties in specific sectors.

Following Hong Kong, Singapore has qualities that attract major global companies. Image courtesy of Singapore Tourism Board

Following Tokyo, Shanghai and Jakarta, does Singapore have qualities that attract major global companies. Image courtesy of Singapore Tourism Board

In the Emerging Trends In Real Estate: Asia Pacific 2014 report conducted and published by the Urban Land Institute (ULI) in the United States and Price-waterCooperhouse (PWC), it postulates that investing in Singapore properties may become more pricey as tighter regulations and compressed property capitalisation rates result in higher interest rates. Some property experts are positive about the change. With less units available for rent, perhaps demand and rental prices may go up. Which sectors are performing better than the others? The truly bumper crop of HDB flats and new private condominiums which went for sale this year may have had some effect on next year’s performance.

So which countries topped the list? Tokyo. And Shanghai and Jakarta came a close 2nd and 3rd. What will Singapore’s property industry come up with next year to get back on the list? And were the slew of property cooling measures this year meant only to help property buyers? How will these measures help shape the future of the industry or will a restructuring of policies be more helpful than implementation of restrictive measures?

Which districts will earn you big bucks, and fast?

It will not be an overstatement to say that the property industry in Singapore is booming. Recent announcements by the government may have gotten everyone into a festive mood with the promise of good things to come. But those good things, such as the Greater Southern Waterfront, may be planned this year, but may only materialise a decade or so in the future. A savvy investor would probably look at which areas will be completed first, and target those for sooner returns.

Woodlands Regional Centre URAThe Woodlands Regional Centre has been in the works for sometime now, drafted and planned by the URA under the Masterplan 2008. Being the closest to our neighbouring Johor Bahru, and served by an established transport network, which will only be further extended in future, commercial plots are already being put up for sale by the government as early as December 2013. Investors can expect development to be rapid, possibly up and running within the next five years.

In another district with a different ambience, but still as vibrant, is the Holland Village area. With bits of nostalgia and pockets of the new and modern, it’s an eclectic mix which attracts the artistic aånd creative crowd. To be extended to include 1,500 new homes and community park, it is also suitably close to the commercial hubs of Biopolis and Fusionpolis at One North. With the circle line and upcoming Thomson line, it will be even easier to connect to other parts of the island from this “urban-village” icon. Properties and businesses in this area might be set up to see a huge change.

Holland Village Extension_640.ashxIndustry analysts are expecting the other areas included in the Master Plan 2013 to be developed much further down the line. The Marina South area for example, will only be developed after the completion of the Thomson MRT Line, which means it will only  begin work 4 years later. Tanjong Pagar, Kampong Bugis and the Greater Southern Waterfront are all areas set for development under the Master Plan 2013, but properties in these areas will mostly be commercial and retail. Residential properties will command high prices, for its proximity to the city centre, thus property consultants are expecting new suburban areas to overtake in popularity and speed of progress.