This year has been challenging for Singapore’s residential property market. Still, there are pockets of opportunities and silver linings. The government is also continually planning ahead with the new growth area Bidadari and the new Circle Line MRT stations— Cantonment, Keppel and Prince Edward.
Private residential properties felt major impact of TDSR
As 2015 draws to a close, it is time to reflect on the performance of residential properties in Singapore. For many people, the recap of the year seems to comprise mainly bitter times for the residential property market.
Since the implementation of the total debt servicing ratio (TDSR) in mid-2013, demand for developer sales of private homes has been badly hit, especially in 2014 and 2015. There has also been a surge in private residential completions, which intensify leasing competition among landlords. According to monthly developer sale statistics released by URA, developers sold a total of about 6,620 private homes in the first 10 months of 2015. On average, developers sold only about 660 private homes in each month of 2015. This is slightly higher than the low figure in 2014 —where developers sold 630 private homes on average per month. This is a far cry from the usual healthy monthly developer sales of about 1,000 units per month prior to 2014. In 2013, on average, 1,230 private homes were sold by developers per month, while monthly average developer sales in 2012 were 1,820 units (see Chart 1).
Chart 1
In some months of 2015 in which developer sales increased significantly, such sales volume has usually been unsustainable. The most recent example was in July, when excellent sales were achieved for High Park Residences and contributed to high developer sales volume in July, but developer sales fell sharply thereafter. Although there was some improvement in private home sales by developers in October, it happened mainly before the seasonally quiet year-end sentiment set in.
October was before the year-end quieter vacations and festive period, so there were two mega projects launched before the quieter market times set in. The two projects were Thomson Impressions and Principal Garden, both in Rest of Central Region (RCR), which received good buyers’ response. The success of Principal Garden and Thomson Impressions affirmed the attractiveness of RCR properties.
Opportunities and silver linings
Disappointing sales in 2015 notwithstanding, if we were to look at situations in perspective, there are good lessons that the hard times provide. There are also the bigger-picture perspective, revelations about pockets of opportunities and silver linings for local private residential properties.
RCR emerged as most resilient in prices and rents
Investors can clearly see that, in 2014 and 2015, homes in RCR stood out compared with Core Central Region (CCR) and Outside Central Region (OCR). Not only did the positive sales of Principal Garden and Thomson Impressions in October reflect keen buyers’ interest for developer sales in RCR, it has been a more positive picture as well for RCR, in terms of secondary sales and rentals. In the first three quarters of 2015, rents of private residential properties dipped 3.4%, while such rents fell 0.3% in all of 2014. Rental fall of non-landed homes in RCR has been lowest in the past two years, compared with that of other regions (see table).
Residential properties in RCR are considered the best of all worlds for tenants, as they are more affordable to rent than high-end homes in CCR, and most RCR developments are also mostly in niche localities. Compared with some suburban localities that are being rejuvenated and new growth corridors, the niche localities and quaint spots in RCR also took decades (or at least a decade) to establish, and such positioning is more well entrenched and resilient — whereas in recent years, various suburban localities were rapidly shaped up, and rejuvenated into new growth corridors featuring lifestyle concepts or key suburban regional centres.
RCR developments are fairly smallish developments with no more than 250 units each. Expatriates from Western countries and advanced Asian countries like such quiet living environment, compared with suburban condominium developments, which comprise many more units. During the hype for suburban condo purchases in 2010 to 2012, suburban condos were deemed to be good investment products since the quantum price is typically lower than a condo unit in RCR and CRC. The reality is that they offer limited product heterogeneity. Leasing demand is also weak, as landlords of suburban condos face competition from HDB flats in the vicinity.
Higher risks for blowout in private residential prices in 2016 but opportunistic buying will set in
A soft landing in prices is indeed painstakingly achieved, with prices correcting marginally since the implementation of the TDSR in 2013, till recently. According to the most recent property statistics released by URA, private residential property prices dipped an average of 1.3% q-o-q in3Q2015. This fall was larger than the 0.9% q-o-q price fall in 2Q2015, but all in all, it still reflected a soft landing in private residential property prices — as prices of overall private residential properties fell a total of 8% over the past eight quarters from 4Q2013 to 3Q2015.
In contrast, a quick look at history shows that private residential property prices fell a total of24.9% over four quarters (3Q2008 to 2Q2009) during the global financial crisis and 20% from 3Q2000 to 1Q2004. Prices fell 44.9% between 3Q1996 and 4Q1998, with the introduction of the May 1996 property cooling measures, followed by the Asian financial crisis.
A current soft landing in the correction of property prices indeed meets the best interests of various stakeholders in property — it better protects existing owners, where their asset(property) prices and wealth did not slump drastically, and developers are able to attain marginal profits though having to reduce prices slightly. Meanwhile, it is hoped that a reduction in property prices will improve the affordability for buyers, and prices are in general more realistic than before.
The prolonged sluggish demand clearly shows, however, that homebuyers will continue to be on the sidelines for value buys. A soft landing may therefore have put property prices sliding on a dragging and never ending negative air instead, unlike situations in which prices dip significantly, within short periods.
The usual prediction is that a soft landing in prices will persist in that every quarter will continue to see a dip of more than one percentage point in private home prices. But, as buyers’ expectations have yet to be satisfied through a soft landing in prices, and given high unlaunched and unsold residential stock, we cannot assume that we will not see a blowout in property prices in 2016. If it happens, it is likely to be short-lived, where opportunity buying may quickly set in and uplift overall property buying sentiments — and prices could recover fast, following a major drop in price in a quarter or two.
Realistic buying behaviour to persist in 2016and lead to more sustainable buying decisions
It is not a completely sad picture for residential properties in 2015. There are projects that received strong buyers’ interest, including North Park Residences, Botanique at Bartley, High Park Residences, Principal Garden and Thomson Impressions. Good sales were underpinned by either competitive pricing or special project selling points such as a mixed-use development concept or quaint residential enclaves.
The good side of the story regarding the rush for residential properties in 2015 is that it is very different from 2010 to 2013. Buyers who rush into getting a unit are increasingly more realistic and opportunistic. Those who snapped up private condos from 2010 to 2013 were, by contrast, more aspiration-driven. They invested in properties with a fairly substitutional mindset, that is, since interest rates were low then, investing in properties would be the best option. The current private residential headwinds have finally instilled a more realistic mindset among buyers and such buying decisions are more lasting than a herd mentality among homebuyers in deciding to buy a condo. Investors who purchased a lower-priced unit would find it easier to peg rents at attractive levels to achieve desired rental returns.
Surge in new completions offer ample cases of positive private property ownership experience
There has been a rise in new residential property completions since 2014. Islandwide, 10,329 private residential units (landed and non-landed) received their Temporary Occupation Permit in 2012 and 13,150 units received TOP in 2013. In 2014, 19,941 units received TOP. In 1Q2015 to 3Q2015 itself, 13,589 private residential units were completed; and a total of 18,977 units are expected to be completed in 2015. This resulted in a significant rise in the vacancy rate of private residential properties. It stood at 7.8% in both 2014 and 3Q2015, notably higher than 6.2% in 2013 (see Chart 2).
Chart 2
These newly completed condos are generally impressive in design and offer an exciting range of condo facilities. In addition, buyers feel a sense of pride and freshness in owning new units. Many owners still find much meaning in their newly completed suburban condos despite current private residential prices and rental headwinds. These factors will influence the decision of the HDB flat owner who intends to buy a private condo.
There is herd mentality among ordinary private condo buyers (that is, HDB upgraders), so HDB upgraders will also be influenced by how their peers cope with their new condo. While HDB upgraders may observe their peers experiencing difficulty in renting out their private condos and dealing with issues of maintenance and defects, they will also see how their peers take pride in the newly completed condo. New launches in 2016 are expected to be priced similarly to or lower than the launch price of new completions in 2014 and 2015. The competitive pricing of project launches may encourage buyers’ interest. Developers that delivered projects in 2014 and 2015 and are prompt in addressing defects within the liability period will be considered quality developers, which will help move sales of their new projects from 2016.
Exciting plans for new estate and locality rejuvenation
While property sentiment may have been cool in 2015, there have been interesting longer term developments announced by the government. In November, it released the first batch of build-to-order (BTO) HDB flats in Bidadari, an area that many flat applicants are looking forward to, despite its “sad past”. In the longer term, those who own an HDB flats in Bidadari will also wish to upgrade within the vicinity, further supporting future resale demand for private homes in Potong Pasir. Investors will find the rentability of homes here higher than those in north eastern areas. While Potong Pasir is unlike the north eastern tip, Punggol, which feature a lifestyle waterway-living concept, there is a good blend of current housing and upcoming private housing, reflecting spontaneity of development in a well-located area. Three MRT stations — Keppel, Cantonment and Prince Edward — were recently announced for expected completion in 2025, benefiting properties in the areas.
Ong Kah Seng is director of R’ST Research. He can be reached at kahseng.ong@rstresearch. com.sg
This article appeared in The Edge Property Pullout, Issue 705 (December 7, 2015) of The Edge Singapore.