The latest indicators of Singapore’s private residential property market do not make happy reading for owners of existing properties. The non-landed Private Residential Property Price Index (PRPPI) has registered a decline for eight consecutive quarters since 3Q2013 (see Chart 1). Since 1995, the Singapore private residential property market has undergone three down cycles: from the 2Q1996 to 4Q1998, from 2Q2000to 2Q2004, and from 2Q2008 to 2Q2009 (see Chart 1). Our view is that the market is some distance away from reaching a bottom, with weak market sentiment and rising unsold inventory being a drag on property transactions being realised.
Chart 1
Identifying resilient planning areas
As evidenced in the past few months, however, there is still enough interest and liquidity in the market to suggest that potential buyers are still on the hunt for “investible” properties for medium- to long-term hold. In the current cycle, we believe purchasers might want to focus on identifying properties that are more resilient to protect their capital investment. In this article, we share a concise version of our analysis of the resale prices of non-landed private residential properties for each of the down-cycles to identify planning areas in which prices were more resilient.
Top 10 most resilient planning areas in Singapore
Extracting data from the REALIS database provided by URA, we analysed the magnitude of the decline in median resale prices of the non-landed private residential properties for each planning areas from the peak to the trough for each of the past down-cycles. Next, we ranked the planning area with the least price decline to the most; the planning area with the least decline can be deemed to be the most resilient. This way of analysing the market trend can provide investors with a reference point from which to start to look for properties in the current climate.
Based on this analysis, we identified the 10 best-performing planning areas in each property cycle in the past 20 years (see Chart 2). Out of 55 planning areas in Singapore, several planning areas have clearly and consistently performed better than others. They are Geylang, Toa Payoh, Ang Mo Kio, Clementi, Hougang, Jurong West, Kallang, Orchard, Rochor and Yishun, which appeared at least twice in the top 10 lists in each property down-cycle (see Chart 3).
Chart 2
Chart 3
Sustainable rental yield of properties within the city fringe area
Among these 10 planning areas, property prices in Geylang and Toa Payoh have shown the most resilience, appearing three times in the top 10 lists for the past four cycles (including the current one). The value resilience in these two planning areas could be partly due to their relatively well established residential enclaves, with excellent connectivity to the city centre and an abundance of amenities, while the growth of rental and prices largely remained in sync with fundamentals.
In fact, if we analysed the gross rental yield of non-landed private residential properties within Rest of Central Region (RCR), or the city fringe area, Geylang Planning Area has demonstrated sustainable rental yield throughout the last three peak-to-trough cycles (see Chart 4). The resilience in rental yield of Geylang residential properties was most apparent since 2008, where it consistently ranks second. Other RCR areas that exhibited similar resilience was the Queenstown Planning Area and Bukit Merah Planning Area.
While there are numerous other factors that should be taken into account in your property investment, what we propose here is a high-level method of filtering investment opportunities. You can and should consider other attributes of the planning area and determine whether you agree with what the data shows.
Chart 4
Catalysts for change in values
In addition to looking for resilience in prices, potential buyers of non-landed private residential properties might want to consider the catalysts in locations that could spur the growth of prices of properties beyond the market norm. A good way to gauge this is to study the government’s development plans. Over the past years, successive efforts by the government to decentralise has resulted in a boost in property prices in Tampines Regional Centre, Jurong Lake District and Novena Fringe Centre. The government is looking to boost the development of the Woodlands Regional Centre, Jurong Lake District, North Coast Innovation Corridor, Paya Lebar Central, among others, in coming years. Typically, such localities will see the government’s efforts to improve the connectivity of public transports and expressways, and the injection of commercial spaces to create employment and retail spaces, which tend to lift up private residential property prices in these areas once it matures.
Look for value resilience and catalysts for change
In conclusion, our hypothesis is that investors looking for property purchases at this point of the cycle should look for localities in which property prices have demonstrated more resilience over the past cycles and with bigger upside potential from government initiatives to enhance the live-work-play element of the location.
Tan Kok Keong is CEO of real estate consultancy REMS Advisors and co-founder of Fund Places, a real estate-dedicated crowdfunding platform. He can be reached at kk.tan@rems.asia.
This article appeared in The Edge Property Pullout, Issue 706 (December 14, 2015) of The Edge Singapore.