With the cooling measures in place and buying sentiment taking a major dip, buyers' focus is now on on generic property products, such as private condominiums, landed homes and HDB flats, as to when could rents and prices possibly recover. Special property products like strata-landed homes, have received lower overall buyers’ concern as to how it will perform, unlike in 2010-2012 where it was well felt by buyers as a value-for-money, innovative housing product.
We must look beyond the short-term – the current headwinds of private residential homes – and note that special housing products have its continued relevance, especially as Singapore's property market has matured over the past decade. There are many exciting new housing products where property heterogeneity is increasingly priced by home buyers who are getting knowledgeable, savvy and discerning. Landed homes are sought after by those with big budgets as owning a piece of land in land-scarce Singapore explicitly indicates exclusivity. But not every potential home buyer can afford a landed home. An alternative could be strata landed homes, which are commonly marketed as cluster housing or town houses. Such homes do not have a land title, but there is a strata title to the property unit. And many cluster home projects offer integrated condo-like facilities for communal use.
Interest in strata-landed homes was fairly encouraging until sales moderated in 2013 and 2014. This was in line with overall fall in home sales due to Jan 2013’s cooling measures and implementation of the Total Debt Service Ratio (TDSR).
According to caveats lodged, the annual number of strata landed homes transacted totaled 711 strata landed homes transactions in 2011 but fell to 285 strata landed homes transacted in 2013 and only 143 in 2014. The 711 transactions in 2011 was a high since 2008. In 1H 2015, about 71 strata landed homes were transacted, similarly to that of 2014 on half-yearly basis (see Chart 1).
Strata landed homes accounted for 21% share of overall landed homes transacted in 2013. This share however dropped to 15% in 2014 and 14% for 1H 2015 (see Chart 2).
Chart 1
Chart 2
Strata-landed homes continue to be relevant
The drop in transactions of strata-landed homes in 2013 and 2014 should not be viewed as a drop in their appeal because buying interest in property overall has fallen in the past two years. Home-buying sentiments generally moderated from 2013. Fundamentally, buyers appreciate strata-landed home for offering them a landed living environment for far less than what they would have to pay for pure landed properties. They are also value-for-money alternative for those looking for something more than conventional condominiums.
Keen ongoing buyers’ interest for strata landed also reflected buyers’ maturity in going for exclusive housing products within their means. The government has implemented the TDSR , that restricts large loans and this really discouraged buyers who tend to overstretch their affordability by taking up large loans. For those buying strata landed homes, they are usually more practical buyers who see that strata landed home is significantly cheaper than a landed properties.
Buyers also believe that prices of landed properties, including strata landed homes, will hold up well compared to condominiums and there will be potential property price upside in the longer run. In 2010-2013, suburban condominiums were in vogue compared to high-end and city fringe homes. But suburban condominium projects tend to comprise some 300-700 units each, which means limited product heterogeneity. In times of property market slow down, they may be most hit as there is hardly any intrinsic value to hold up their prices. Besides, strata-landed homes are still fairly limited in numbers and are considered a niche property product.
Cluster homes often come with communal condominium like facilities, which make economic sense for the owners. Although having facilities like a pool within one’s landed home is a prestige, it can be costly to develop and maintain. It may become a luxury as most occupants do not use it frequently but only occasionally for leisure, rendering it an aesthetic than a functional item.
When the market recovers, strata-landed homes are expected to continue to interest HDB owners, who would assume a different lifestyle when they upgrade to private condos. Those who advance directly to landed homes may, therefore, be considered the best in their league. But as landed homes are much pricier, strata-landed homes that are well conceptualised and fairly individualistic will appeal to HDB upgraders as they offer both a landed living environment and the novelty of communal leisure facilities.
Outlook for strata-landed homes still resilient
The concept of strata-landed homes is now regarded as tried-and-tested as they offer owners a subtle exclusive residential experience and capital appreciation. Investment demand may not be overwhelming as landed homes still are costlier for tenants compared to condominiums. But the stable rental demand, especially from senior expatriates from western countries who do not like apartment living and emphasis on tranquility, mean that strata landed homes will see continued favourable leasing demand.
Some private residential property owners may also cash out on their pure landed property and purchase a strata-landed home. Such a move would allow them to still allow them to have a landed staying environment, which they are used to. At some point in life, owners of landed property often decide to downgrade not because of high financing costs, but because of changing family dynamics. For instance, family size may shrink after grown-up children get their own matrimonial home, and the elderly couple might find their landed home too large for own stay. Those who downgraded from landed property to strata landed homes, they may instead find cluster homes as more ‘functional and convenient’ properties than a pure landed property, as they can enjoy cluster housing facilities that they do not have to personally manage.
Strata landed homes still appeal to homebuyers with higher affordability, notwithstanding slowdown in sales in 2014 and 1H 2015. But this period of quieter sales activity for strata landed homes might instead be appreciated by buyers, who prefer unique housing products where prices were not quite hyped up. It is also the fastest way for the wealthier lots of HDB upgraders to show an uplift in living conditions, compared to upgrading to condominiums.
From 2014, there has been increasing number private residential completions, bulk of which is non-landed homes. Landed homes will be favoured as prices can be expected to remain resilient but pure landed homes have so hefty price tags that they breach the affordability of many buyers except the super wealthy. This is exacerbated by the TDSR where loans dispensed can only be within permissible limits with reference to buyers’ monthly income. Although strata landed homes are not perfectly heterogeneous property products, they are considered more differentiated than private condominiums, and the element of property distinction is stronger.
The appeal of strata landed homes does not however imply homebuyers will embrace it without considering the product’s concept. Developers will actively identify new homebuyers’ requirements, and fully expand the potential of their cluster home offerings, to tap on an on-going keen buyer’s interest for niche property products.
There will be substantial new residential completions, especially non-landed residential properties, in the coming years. Suburban condominiums may have sold fast in recent years due to more affordable quantum prices, but actually, buyers with strong financing capacity will still prefer a strata landed home or mid-end, high-end private apartment; as they understand that in the longer term, it will be easier to extract intrinsic resale value from these units.
This article appeared in The Edge Property Pullout of Issue 688 (August 3) of The Edge Singapore.
Ong Kah Seng is a director and Alex Sun is a senior analyst at R'ST Research. The views expressed here are their own.