Have the prices of high-end homes really picked up?

By Feily Sofian & Esther Hoon

/ The Edge Property |

September 23, 2016 10:49 AM SGT

Recently, the Urban Redevelopment Authority mandated developers of delicensed projects to submit the net prices of units sold. The order was triggered by concerns that these projects could have inflated the URA Property Price Index as their caveats may omit discounts or other incentives given by developers.

A residential project is delicensed after it has attained the Certificate of Statutory Completion and when the individual strata titles have been issued to buyers. Examples of such projects are OUE Twin Peaks and Ardmore Three. They no longer come under the Housing Developers rules.

A majority of developer sales of delicensed projects were in the Core Central Region, also known as the high-end segment. Our estimates show that delicensed projects could have substantial weightage and implication on prices of private non-landed homes in the CCR — representing 25% in 2Q2016 and 22% in 3Q up to mid-September. As official data was not available, the estimates were based on resale transactions in delicensed projects that had no prior new sale caveats.

According to the URA Property Price Index, prices for non-landed homes in the CCR have trended up 0.3% q-o-q for two consecutive quarters by 2Q2016. However, have high-end home prices really picked up when prices at some delicensed projects do not reflect the discounts or other incentives enjoyed by buyers?

Positive signs in the resale segment

Resale transactions would provide some clues on market sentiment as they are in the hands of individual sellers. They show mixed signals in 2Q, but certainly do not look grim. In Table 1, we paired together 1Q and 2Q resale transactions of units in the same project and on the same stack in the CCR. There were 23 such pairs. We then computed the price change between 1Q and 2Q, adjusting only for floor level, having controlled for the units’ orientation and size.

Out of the 23 pairs, 13 show prices increasing q-o-q or remaining unchanged while 10 show prices declining. At Cairnhill Crest, for example, a 1,733 sq ft unit on the 10th floor was transacted at $1,731 psf in 1Q while a same-size unit on a lower floor of the same stack fetched a higher price of $1,818 psf in the next quarter.

Table 1

The trend appears to continue into 3Q. In the quarter up to mid-September, there were 15 similar pairs, out of which 10 show prices increasing q-o-q or remaining unchanged and five show prices declining (see Table 2). At Residences at 338A, a 1,206 sq ft unit on the seventh floor was sold for $1,327 psf in 2Q; in the next quarter, a same-size unit on the second floor changed hands at a higher price of $1,551 psf.

Table 2

It may be argued that the $1,327 psf in 2Q is an outlier, which resulted in a high q-o-q price growth. However, we are more concerned with the general trend of the market. This is because deals at rock-bottom prices are usually the ones that get highlighted in a downcycle, which may result in an overly bearish sentiment. Separately, the Singapore Residential Price Index for completed private apartments and condominiums in the Central Region, compiled by the National University of Singapore’s Institute of Real Estate Studies, inched up 0.7% m-o-m in July after a 0.9% gain in June.

Still, consumers should not be too fixated on small percentage changes shown by any price index because anything less than a 0.5% q-o-q change should be considered mild or flattish, which would result in a less than 3% change in a year, regardless of whether it is a growth or a decline. Consumers should instead consider the variables that would impact price indices, including macroeconomic indicators, rental indices and vacancy rates.

Has the stock of unsold units declined?

The other problem posed by delicensed projects is in the computation of unsold stock in the market. Once a project is delicensed, it is stricken off the official record of unsold stock. Hence, stock of unsold units may decline not because the units were sold but because the project was removed from the record.

Unsold stock of uncompleted private homes islandwide fell by some 4,300 units from 30,409 as at end-2Q2015 to 26,085 as at end-2Q2016. However, there could be an additional 2,600 unsold units from delicensed projects. The estimate may be slightly inflated as some buyers may not have lodged a caveat for their purchase.

Buying activity continued to pick up in the high-end and city-fringe segments. The number of caveats lodged for private non-landed homes grew 23% y-o-y in the CCR in 3Q and 31% in the Rest of Central Region, also known as the city-fringe segment. The percentage could be higher as the full data for the quarter will only be available next month. The mass-market segment, or Outside Central Region, bucked the trend with a y-o-y decline in the number of caveats lodged.

Homes in the CCR have been perceived as a value buy after a streak of price corrections. Notwithstanding this, a weak macroeconomic outlook will rein in any market exuberance. Recently, the Ministry of Manpower announced that overall unemployment rate rose from 1.9% in March to 2.1% in June. A total of 4,800 workers were laid off in 2Q2016, the highest redundancies for the second quarter since 2009. One thing has become more apparent — any future downtrend in high-end prices would be caused by a dour economy rather than engineered by the cooling measures.

This article appeared in The Edge Property Pullout, Issue 747 (Sep 26, 2016) of The Edge Singapore.

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