SINGAPORE (EDGEPROP) - The gap between the average price of a private resale property and the average price of new launch projects is at its widest in the last five years. Based on resale transaction statistics from PropNex Realty, the price gap increased to about 47% in 1Q2021 from 35% for the whole of 2020 and 28% in 2019, after climbing from 23% in 2018. (See also: Developers sell 1,262 new homes in April)
“Historically, there has always existed a price gap between the private resale market and the new home market. However, an alarming observation we have made is that this price gap between the two market segments is at its widest based on transactions over the past five years,” says Ismail Gafoor, CEO of PropNex Realty.
Gafoor attributes the widening price gap to the increase in prices of successful new project launches across the island, from the Core Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR) over the past three years. (See: Browse newly launched condos in Singapore right now)
Typically, smaller units are among the first to be snapped up when a new project is launched for sale and developers take this into account when they plan their pricing strategy, says Gafoor. “Thus, the psf prices of one- and two-bedroom units tend to be priced relatively higher compared to larger sized units such as three- and four-bedroom units. This contributes to the glaring price gap we have seen in recent years.”
The residential resale market for private units and HDB flats has rebounded strongly since 2H2020. (Picture: Samuel Isaac Chua/The Edge Singapore)
Going forward, he does not expect the price gap to narrow any time soon based on the recent land bids for Government Land Sale (GLS) sites at Ang Mo Kio and Farrer Park. In May this year, a GLS site at Ang Mo Kio Avenue 1 was awarded to a joint venture comprising UOL Group, Singapore Land, and Kheng Leong. The developers submitted a winning bid of $381.38 million which translates to $1,118 psf per plot ratio (ppr).
Another GLS site at Northumberland Road in the Farrer Park area was awarded to joint venture partners City Developments and MCL Land in April this year. The JV partners submitted a winning bid of $445.9 million which translates to $1,129 psf ppr.
“Recent GLS sites have gone for more than $1,100 psf ppr and this means that in about 12 months’ time when these new projects are launch-ready, we can expect initial launch prices to start from $2,000 psf,” says Gafoor.
The resurgence in the private resale market also extends to landed homes. URA data for 1Q2021 saw landed housing segment prices increase 6.7% q-o-q, and surpassed the 2.5% increase for non-landed housing. Landed housing also saw a doubling in transaction volume in 1Q2021 compared to a year ago.
“Landed homes are a highly desirable real estate asset that many Singaporeans aspire to own, and competition for available houses has heightened given the relatively limited supply of landed homes compared to condominium and apartment units,” says Gafoor.
Besides low interest rates, buyers are gravitating towards landed property as prices appear more attractive on a psf basis, notes Gafoor. “There are some freehold landed properties on the market that are going for $1,300 to $1,500 psf,” he adds.
With the desire for more space given the work-from-home culture, more people are looking at upgrading from condos to landed property. Gafoor expects the current level of buying interest to continue.
The strong performance of the resale market over the past year has raised concerns that the government could step in to cool the market with a fresh round of property cooling measures. The last time this happened in July 2018, property prices had increased by 9% over the preceding 12 months.
“The government has been clear that cooling measures are not haphazardly introduced but are implemented to achieve the government’s goal of sustainable price growth in the residential property market,” says Gafoor. He adds that it does not benefit any party when price growth outpaces the average affordability of most Singaporeans.
While overall property prices have increased by about 6% over the last four quarters the situation is not as alarming as it was in 2018, he says. “However, if the next few quarters also record similar levels of quarterly price increases, I would not be surprised if the government steps in and introduces another round of cooling measures.”
If new cooling measures are implemented in the future, he expects the government to tweak the Total Debt Servicing Ratio (TDSR) which is currently capped at 60% rather than adjusting an already hefty Additional Buyers’ Stamp Duty (ABSD) regime in place. He reckons that the TDSR could fall to 50% or 45% which will curtail many buyers from purchasing a second property or a more expensive property that may be beyond their means.
In the HDB resale market, construction delays plaguing BTO projects have been a major pull factor to encourage buyers to consider resale flats, says Steven Tan, managing director of OrangeTee & Tie. (See: Find HDB flats for rent or sale with our Singapore HDB directory)
The HDB resale market is supported by a few groups of buyers such as homeowners who have been put off by the lengthy completion times for some BTO projects, as well as upgraders looking to move into a larger HDB flat and some condo downgraders looking to cash out for their retirement, says Tan.
The competition for available flats has also shone the spotlight on relatively high cash-over-valuation (COV) premiums that some HDB buyers are willing to fork out to secure popular flats.
“I expect COV rates will continue to climb slightly in the next few months. Based on engagements with our agents, the average acceptable COV for most buyers range from between $30,000 and $40,000, and for some popular locations the COV could be as high as $60,000 in some cases,” says Tan.
New HDB flats in the Dawson estate. Relatively high COV rates could continue for the next few months amid stiff competition for available popular flats. (Picture: Albert Chua/The Edge Singapore)
However, he does not expect prices to “get out of hand” as this will have an impact on the valuation of other units in the same block. According to Tan, HDB valuers take into consideration the market situation at that point in time when computing the valuation, and not just recent transaction prices. “Hence,the COV rate could remain unchanged or just slightly higher even if resale prices increase further,” he says.
Overall, Tan expects the total volume of HDB resale transactions for the whole of 2021 to increase by 15%–20% compared to 2020, and he expects prices to climb by 6%–9% over the same period.
Similarly, Gafoor expects the robust performance of the private resale market to carry on through the rest of the year. “The private resale market has performed exceptionally well over the first five months of 2021, and I am confident that the overall volume of transactions will exceed 14,000 for the whole of this year. We are likely to see average prices increase from 5%–6% for the non-landed segment, and prices in the landed segment climb by 10%–12% for the whole of this year.”
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