The URA property price index may be the official metric that monitors price movements. However, property investors should be less preoccupied with the price index, scrutinising for signs of the market bottoming out.
First, an index that is bottoming out does not imply an imminent market recovery. As property prices are a function of income level, price recovery would hinge on the prospects of the Singapore economy. The latter should be the primary concern of investors.
Price indices also do not reflect outliers that are deep-value opportunities for investors. At OUE Twin Peaks, a 1,399 sq ft unit on a high floor was transacted at $3 million, or $2,150 psf, last November. The price was an outlier as other buyers were willing to fork out up to $3.8 million, or $2,698 psf, in December for a mid-floor unit of similar size in the project. It would likely have been a highly lucrative deal for the buyer regardless of market conditions.
The index is a broad indicator of price movements. URA’s flash estimate shows the price index for condominiums and apartments in the high-end segment, or Core Central Region, staying flat q-o-q in 4Q2016. However, based on sale transactions in the CCR, the actual price movements possibly had a wide range, say between -5% and +4% q-o-q in 4Q2016 (see table).
At Soleil @ Sinaran, for example, an eighth floor unit fetched $1,715 psf in 3Q2016. In 4Q, a unit on the 13th floor was transacted at $1,660 psf, reflecting a 3% q-o-q decline. The price decline would have been steeper — about 5% — if the difference in floor level was taken into account. The $1,660 psf was unlikely to be for an inferior unit considering both units are located on the same stack and hence, are similar in size and facing. Perhaps there was a superstition factor at play as the first unit was located on the eighth floor while the latter was on the 13th floor.
At the other extreme, a seventh floor unit in Botanic Gardens View changed hands at $1,489 psf in 3Q2016. In 4Q, a unit on the ninth floor of the freehold apartment in district 10 went for $1,560 psf. This reflects a price hike of 5% q-o-q. Again, both units are located on the same stack. If the difference in floor levels was taken into account, the price hike would be slightly lower, about 4%.
Separately, the URA price index for apartments and condos in the city fringe, or Rest of Central Region, dipped 2% q-o-q in 4Q2016. Actual transactions, however, showed prices generally moving between -8% and +8% q-o-q. In the mass-market segment or Outside Central Region, actual transactions showed prices moving between -7% and +3%.
As they are a broad indicator of price movements, there had been occasions when price indices were deemed inadmissible as a time adjustment factor in valuation for dispute resolutions, such as in determining land acquisition compensation. If the latest transaction in the subject development had taken place some years earlier, valuers might have to rely on the price movements in comparable developments rather than use the price index to adjust that transaction to the current market value.
A robust index may be a good reflection of market sentiment. However, any price movement of less than 1% per quarter is mild, regardless of whether it is moving in a positive or negative direction. In 4Q2016, the URA price index for apartments and condos in the RCR dipped 2% q-o-q. Few market watchers could offer insights into the trend. In the event of a significant movement in the price index, perhaps URA could offer some insights on which micro market led the rebound/decline in prices.