Download Is Singapore`s battered residential market finally bouncing back?

COVER STORY
Residential market could be making its way out of the woods
Is Singapore’s battered residential
market finally bouncing back?
For a time, there seemed to be no end in sight for Singapore’s sales sluggishness and home price
declines, but 2017 could provide a long-awaited respite.
W
hen developers sold 1,921 units in July
– around one-quarter more than the
units launched that month – it gave hope
that Singapore’s residential sector was regaining
composure after getting beaten down by additional
property cooling measures. Aside from a rise in
transaction volumes, the steep price declines are
slowing down, leading some analysts to predict 2017
as a year of relative stability. “With improvements
in transaction volumes and prices of different market
segments showing a mix of mild increases or decreases
generally, the private home sales market appears headed
towards a bottoming in the next few quarters, provided
sentiments remain positive and barring major external
shocks,” says Ong Teck Hui, national director of research
& consultancy at JLL. Sharing this cautious optimism,
Tay Kah Poh, executive director & head, residential
services at Knight Frank says the private housing market
is “finely poised.” He expects total new sales volume to
reach 6,800 to 7,500 units in 2016, albeit some challenges
line the market’s recovery path.
“While there are signs of a market turnaround from
emerging value, global economic weaknesses will
dampen the recovery. We expect price movements will
32 SINGAPORE BUSINESS REVIEW | NOVEMBER 2016
After the
mid-year lull in
June, activity
has clearly
picked up in
the private
home market,
as seen in the
new launches
and a marked
increase in
transactions
be range-bound in a tight band for the rest of this year,
but with a bias downward,” says Tay.
Buying demand remains strong
Buying demand remains strong, according to ERA, as
evidenced by the 1,921 units sold by developers in July. It
also shows that the abundant stock that has been putting
pressure on prices is progressively being absorbed. Out
of the sold units, 1,091 (57%) were private residential
units, a 104% increase in transaction volume over the
previous month. Meanwhile, 830 (43%) were executive
condominiums (ECs), a 258% increase. “After the midyear lull in June, activity has clearly picked up in the
private home market, as seen in the new launches and a
marked increase in transactions,” says Ong.
The EC market also continues to draw buyers, with
seven out of the top 10 best-selling projects being ECs.
The ERA points out that the EC market has already
outperformed 2015 in terms of number of transactions,
with 2,697 units sold in the first seven months of 2016,
compared with 2,550 in the whole of 2015. Projects
already on the market were also snapped up by buyers,
with developments such as Bellewaters, Bellewoods, The
Visionaire, and The Glades selling well.
COVER STORY
By the end of the year, ERA expects developer sales to
be about 7,500 to 8,000 units for private condominiums
and 3,000 to 3,500 units for ECs. Private residential
unsold inventories have continued to decline, with
23,282 units remaining unsold, the lowest level in the last
decade, says Celine Chan, research analyst at OrangeTee.
She attributes the lowering inventory level to the
tapering of government land sales sites in recent years,
which has constricted the number of new launches,
narrowed buyer options, and increased sales of existing
launches. More buyers will be looking to snap up
bargains soon due to a confluence of enabling factors.
“We believe that there is ample liquidity accumulating
on the sidelines. Given the past strong performance of
the Singapore property market, the relative safety of
Singapore real estate, and current low interest rates, both
Singaporeans and foreigners are still very keen to invest
in Singapore property,” says Chan. “With no changes to
cooling measures in sight and the market experiencing
waiting fatigue, the ‘pent-up’ liquidity may continue to
seep into the market,” she adds.
Tay Kah Poh
Desmond Sim
Private property price declines decelerate
As the supply of unsold units lowers, there has been a
notable slowdown in private property price declines.
The second quarter of 2016 was the 11th consecutive
quarter where the private property price index continued
to decline, but it also registered the smallest quarterNew private residential units take-up
Source: URA, CBRE Research, Q2 2016
Gross yields of private residential property, by market segment
Source: REALIG(based on data as at 25 July 2016, UFA, Knight Frank Research
on-quarter change at -0.4% since the slides began in the
fourth quarter of 2013, says Chan.
She highlights how the price changes in the Core
Central Region (CCR) and Rest of Core Central
Region over the last few years have slowed, suggesting
stabilisation in the two submarkets. “The CCR in
particular should continue to receive heightened interest
as developers offer deferred payment schemes or/
and direct discounts to help buyers cope with cooling
measures,” says Chan.
Knight Frank’s Tay expects island-wide private
home prices to decline at a slower pace in 2016 than
in the past two years, with the mass market leading
the fall, although prices of luxury homes are likely to
be supported by homebuyers who believe in the value
proposition of high-end homes. For investors, this makes
the mass-market segment the least attractive from a riskreward perspective, while the CCR or prime residential
property segment is a great choice as prices moved
against the grain by increasing 0.3% and 0.2% in the first
and second quarters of 2016, respectively, says Eli Lee,
analyst at OCBC.
Luxury segment livening up
One segment that is attracting more buyers recently
is luxury residential. Interest in luxury homes picked
up in the first half of 2016 (1H16) as the price gap
between sellers and buyers narrowed. Prices of good
class bungalows (GCB) seem to have found a sweet spot,
falling by 2.5% to $1,318 psf on land area, from $1,352
psf as at end of 2015.
“With owners’ price expectations moderating, some
buyers are seeing a window of opportunity to invest.
Moreover, owners who bought good class bungalows
several years ago have found it profitable to sell at today’s
prices rather than at a later date,” says Desmond Sim,
head of research, Singapore and SEA at CBRE. The most
expensive GCB sold in 1H16 is located at Kingsmead
Road, and Sim reckons the $29 million transaction at
$1,065 psf was driven by pure land price since the house
had to be redeveloped. Also, the period saw the garden
of Eden Hall, the official residence of the British high
commissioner, offered to the market for a second time
this time with a 20% discount, keeping in line with the
12.3% decline in the URA price index for landed homes
since it hit a peak in the third quarter of 2012.
Similarly, 1H16 saw stronger buying of luxury
apartments as developers offered discounts and creative
financial schemes. A total of 131 luxury apartments
worth $5 million and above were sold during the first
six months of the year, already 76% of the 166 units
sold in the whole of 2015. Sim says that amongst the
developments that contributed to the 1H16 volume was
Ardmore Three, which sold 34 units priced at $3,200 psf
after a 15% discount plus a 15% cash rebate for additional
buyer’s stamp duty. Other projects that sold during the
period included Leedon Residence (11 units), Goodwood
Residence (6 units), and Gramercy Park (4 units).
Luxury apartment prices have been climbing as
demand holds up and supply remains tight. The most
SINGAPORE BUSINESS REVIEW | NOVEMBER 2016 33
COVER STORY
expensive luxury apartment sold in 1H16 was a 7th floor
unit in Le Nouvel Ardmore which fetched $21 million
at $4,000 psf. At end-June, the overall average price of
luxury apartments stood at $2,950 psf, up from $2,700
psf at end-2015. “These strong sales could be attributed
to creative pricing packages and payment schemes
which triggered a flight to value. These sales have put
luxury apartments in a good position to perform better
in 2016 compared to 2015, albeit an expected slowdown
in the second half of 2016 (2H16), in the absence of new
launches. Prices too could hold firm as pipeline stock is
limited,” says Sim.
Ultra rich Indonesians snap up posh homes
Another factor that breathes life into the luxury segment
is the increase in posh home purchases by wealthy
Indonesians. 30 properties valued at over S$5 million or
more were bought between January and mid-August.
What’s driving the surge in luxury transactions among
Indonesian buyers? Apart from it being a ripple from the
Indonesian tax amnesty, Krishna Guha, equity analyst
at Jefferies Research, says that one of the factors is that
businesses are morphing into family offices/investment
holding companies. “Companies which are not involved
in real estate are closing down or merging because of
various reasons including lack of growth, cost pressures,
thin margins due to competition, succession planning
issues and/or outright bankruptcy. Such business owners
are partly investing the cash proceeds into investment
property to seek rental income.” She adds that the
introduction of stamp duties in Australia and UK
and concerns around BREXIT also contributed to the
increase.
On the other hand, while generally more buyers
snapped up GCBs and luxury apartments, there were
no sales of Sentosa Cove bungalows in 1H16, and in
the absence of sales evidence, prices have held at 2015
levels. “The dearth of transactions could be attributed
to the wide price gap between buyers and sellers,” says
Sim. Looking forward, he reckons luxury sales activity
might slow down in 2H16, with cooling measures still in
place, uncertainties on the global economy and political
front, and the absence of new launches. But GCBs will
continue to be a bright spot with CBRE expecting 25 to
35 GCBs to be sold throughout the year as buyers look
for an opportunity to upgrade to a better location, bigger
plot, and more prestigious address.
Private residential property price index (RPPI)
Source: URA, OrangeTee Research
34 SINGAPORE BUSINESS REVIEW | NOVEMBER 2016
Average luxury residential prices
Source: CBRI Research, July 2
Total transaction volume, by type of sales
Source: UPA, Knight Frank Research
Eli Lee
Ong Teck Hui
In September, the Monetary Authority of Singapore
announced that it would fine-tune the refinancing
rules under the Total Debt Servicing Ratio (TDSR) that
would essentially exempt more borrowers, but analysts
hold mixed views on the impact of these tweaks on
the residential market. “These fine-tunes are very well
thought-out and would add a measure of stability to the
balance sheets of existing borrowers. At the margin, this
could relieve some stress on the secondary market and is
overall positive for the domestic housing market and the
banks’ mortgage loan books,” says Lee.
TDSR refinancing rules tweaked
While existing borrowers will get more breathing room,
Lee reckons that the limits regarding new property
loans have not been changed and the authorities have
emphasised that the move should not be taken as an
easing of the property cooling measures that have been
so effective in curbing demand. Analysts expect the
residential market will continue to feel the pressure in
2H16 and pull down prices. Buyers, especially those
outside of the luxury residential segment, will remain
apprehensive about locking in deals due to the dearth of
available supply and the possibility of better offers coming
along in the near term. “Looking ahead to 2H16, barring
curb reversals, we expect home prices to grind lower
under a potent mix of an uninspiring economic outlook,
continued physical oversupply, and persistent pressure
from still-falling rentals as buyer sentiments remain
cautious in what is by now one of the longest property
bear in recent history,” says Lee.