OPINION: Potential impact of property cooling measures on selected projects

By Elizabeth Choong

/ Edgeprop Singapore |

January 24, 2022 5:47 PM SGT

Central Green Condominium (Picture: Samuel Isaac Chua/EdgeProp Singapore)

Cooling measures introduced in December 2021

SINGAPORE (EDGEPROP) - In December 2021, the government introduced a set of measures to cool the buoyant residential property market. Although the measures are expected to inject more caution and act as a dampener to the fast-rising prices, a sharp price correction is unlikely, given that market fundamentals such as tight supply and low interest rates remain unchanged. Moreover, the market reacted similarly in the previous rounds of cooling measures. For example, the pace of price increases eased after the additional buyer’s stamp duty (ABSD) was raised in July 2018, but the upward trajectory for prices continued unabated on the back of continued demand for residential properties.

Housing developers will feel the squeeze on their profitability because they have to ramp up marketing efforts and resources, especially for projects that tend to attract foreign buyers. As such, new land sales could face higher price resistance and developers may even walk away from recently concluded deals. For example, Shun Tak Holdings chose not to complete the en-bloc purchase of High Point.

The increased caution from developers will also have an impact on the 1H2022 Government Land Sales (GLS). The residential land parcels on the confirmed list are expected to see fewer bidders and lower bid prices, with the possible exception of the Dunman Road site due to its excellent locational attributes and easy access to Dakota MRT Station. The healthy response for the GLS site along Jalan Tembusu reflects the continued bullish sentiments for the property market. There were eight bidders for the site with City Developments submitting the top bid of $768 million or $1,302 psf per plot ratio (ppr).

In addition, the government reduced the total debt servicing ratio (TDSR) for new housing loans from 60% to 55%. The loan-to-value (LTV) limit for new housing loans granted by HDB was also decreased from 90% to 85%. However, LTV remains at 75% for housing loans granted by financial institutions. Although the tightened TDSR will ensure that home buyers do not borrow beyond their means, it would also mean smaller loans available to them to finance their purchases.

Who will bear the biggest brunt?

Based on data from URA, foreign buyers bought 20% to 25% of all transacted condominium units from 2012 to 2019; dropping to just below 20% in 2020 and 2021 due to the pandemic. This translates to about 3,500 to 5,600 units per year by foreigners.

Source: EdgeProp, URA (as at Jan 3, 2022)

In terms of sheer transaction volume, the Rest of Central Region (RCR) proved to be most popular with foreign buyers over the years, while the Outside Central Region (OCR) takes second place. But further examination paints a very different picture. An analysis of the units purchased by foreign buyers as a percentage of the total number of units sold in that region during the year would clearly indicate that the Core Central Region (CCR) consistently takes the top spot. As OCR covers a much larger area than the other two regions, the number of units launched in that region will naturally be more than the other two regions. Hence, it is not surprisingly that OCR takes the second spot for foreign buyers when merely analysing transaction volume. However, the prestigious location, connectivity, limited supply and higher price level of CCR and RCR projects will always attract a significant percentage of foreign buyers.

Source: EdgeProp, URA (as at Jan 3, 2022)

From a developer’s perspective, newly launched or about-to-be-launched developments in CCR and RCR may face the largest challenges. Using EdgeProp research tools, we have compiled a list of projects in CCR that are still under construction, are popular with foreign buyers and have a current take-up rate of below 30%. Their centralised location, while attractive to foreigner buyers, may put them at a disadvantage as foreigners rethink their buying intention after the latest round of measures. Additionally, their low take-up rate means that developers will need to be extra creative in selling this large volume of units.

newly launched condominium - EDGEPROP SINGAPORE

The good news is developments with strong take-up rates of over 70% should face fewer difficulties as they would have sold the majority of their units. Their challenge is to find innovative ways to attract first-time home buyers or upgraders for the remaining units. Such projects may face fewer difficulties if they are in OCR as foreign buyers are not their primary target market.

popular launched condominiums - EDGEPROP SINGAPORE

https://www.edgeprop.sg/property-news/ten-hottest-launches-2021

What can developers do?The main mitigating factor for developers is the low supply of new condominium units and limited number of launches in 2022. Unsold inventory is also at a record low of about 14,000 units. Some developers may push back their launches so that they can re-strategise their pricing and marketing campaigns, thus exacerbating the tight supply situation.

As with any property, location is vital. For new sites, developers should consider sites with unique locational attributes and superior transport connectivity. They may also want to consider a joint venture with another developer to share development risk. Most importantly, developers must do their sums carefully to avoid submitting an overly high bid-price for the land.

Developers with developments that are still under planning should work with their architects and designers to create a niche product that speaks to their target audience. The recent pandemic has seen many turn to nature and gardening for their mental well-being. Developers should take note of this trend and include more lush landscaping or even community gardens in their project. Bearing in mind the demand for more space due to working-from-home arrangements, developers could consider having more larger units in their projects and fewer studios or one-bedroom units. Adding power track systems and energy-saving features could also give the development a boost.

For projects under construction, there is little that developers can change in terms of layout or design. However, they can do some benchmarking and make some minor price adjustments to match competing nearby projects. With their budget slashed by the new measures, potential buyers or investors will definitely do more comparison shopping to get the best value for their money. Developers should also ramp up marketing efforts to trumpet the unique qualities of their project that differentiates it from its neighbours.

What can buyers and investors do?

The recent cooling measures may be beneficial to first-time home buyers who are Singaporeans or PRs looking for deals. In addition, the current low interest rate environment is also favourable for the property market. The high prices for resale HDB flats also provide aspiring upgraders more capital to purchase a condominium unit. (Find HDB flats for rent or sale with our Singapore HDB directory)

Foreign investors should not discount Singapore’s residential properties based solely on the new cooling measures. In today’s uncertain and ever-changing world, Singapore still provides a safe investment haven for savvy investors. Additionally, the quality and design of Singapore’s luxurious condominiums can easily stand toe-to-toe with the world’s best.

New projects worth a second look

There are a few new projects that deserve a second look from potential buyers. The first three projects below are in an established residential area and thus offer first-time buyers and their family plenty of amenities and public transport options. The projects are also selling at average prices of below $1,800 psf, which have proven to be affordable to many buyers based on the robust sales for each project.

First-time home buyers and HDB upgraders should take a look at Parc Clematis in Clementi. The massive project is in a mature housing estate, which means easy accessibility to public transport and amenities such as schools. The average selling price of $1,695 psf is on a par with other developments in District 5. Parc Clematis is selling well due to its reasonable pricing, convenient location and numerous facilities.

Parc Clematis (Picture: SingHaiyi)

Families who love the great outdoors might wish to consider Midwood. It is conveniently located within walking distance of Hillview MRT Station and a supermarket. It is also a short drive away from several local schools, an international school and two nature parks. About 87.8% of the units are sold and it is one of the best-selling projects for December 2021, which is a great testament to its excellent connectivity to public transport, easy access to nature and attractive average price of $1,686 psf.

The Florence Residence, located along Hougang Avenue 2, might appeal to first-time buyers. The development has numerous facilities, including an 80m lap pool and a two-storey clubhouse. Future residents are spolit for choice when it comes to shopping options, as the project is located a short drive to Kovan Heartland Mall and Hougang Mall. The Florence Residence has a take-up rate of about 90.0% due to its affordable average price of $1,678 psf.

For foreign buyers or investors, they may wish to consider the projects highlighted below because of their centralised location, which will be more attractive to potential tenants. One Pearl Bank and Midtown Modern are landmark projects with luxurious finishes that have attracted many buyers, while Jervois Mansion has been touted as the most affordable development in prime District 10. The prime location of these projects plus their quality features make them excellent additions to any investor’s portfolio.

One Pearl Bank is a landmark project with an award-wining green façade. Its strategic location near the historical Chinatown, CBD, Orchard Road and Outram Park MRT Station has won over many buyers. The 774-unit development has a take-up rate of almost 70% and an average price of $2,458 psf.

One Pearl Bank (Picture: Samuel Isaac Chua/EdgeProp Singapore)

Potential investors who prefer the hustle and bustle of city life should consider Midtown Modern. The project is located in the heart of Bugis and has Bugis Junction, Bugis+ and the National Library as neighbours. The project is within walking distance to Bugis MRT Station, which is only two MRT stops away to Raffles Place. There are three uncompleted residential projects in the vicinity, but Midtown Modern’s average price of $2,767 psf is on a par with The M ($2,681 psf) and lower than Midtown Bay ($3,032 psf).

If investors prefer families as their tenant, Jervois Mansion should be at the top of their list. It is a freehold development in prime District 10 and within walking distance to Alexandra Primary School and Valley Point Mall. Great World City, Tiong Bahru Plaza, Orchard Road and the CBD are a short drive away. Jervois Mansion’s attractive average price of $2,576 psf has seen 78.5% of its units snapped up. The only other uncompleted freehold development in the area is Petit Jervois, which is selling at a higher average price of $2,859 psf.

Consider the resale market

Newly launched projects tend to sell at higher prices compared to completed nearby properties. Instead of buying a hot new project, buyers can consider their less glamorous but more affordable neighbour, if budget is a key constraint.

Parents who love the numerous reputable schools in Clementi may wish to consider Regent Park. With an average price of $1,029 psf, it should suit the budget of many families comfortably. The 99-leasehold property is located within walking distance of Clementi MRT Station and Clementi Mall. It is also located in the heart of a mature housing estate with many amenities.

Regent Park (Picture: The Edge Singapore)

Central Green Condominium is a project that homebuyers can consider. It is a short walk to Tiong Bahru MRT Station, Tiong Bahru Plaza and Tiong Bahru Market, as well as a short drive to Great World City, Orchard Road and the CBD. The 99-year leasehold development is fetching an average price of $1,442 psf which is lower than nearby completed developments. Buyers who are willing to pay more for a newer project can consider its neighbour across the street, Highline Residences, which has an average price of $2,050 psf. Central Green Condominium and Highline Residences were completed in 1995 and 2018 respectively.

Investors looking to attract office workers as tenants could consider the Tanjong Pagar area where the government’s rejuvenation plans have transformed the area from office-dominated to one that encompasses more “live” and “play” elements. Icon is a residential and retail development that is just a short walk away from Tanjong Pagar MRT Station. Its average price of $1,668 psf is lower than that of its immediate neighbours, namely, Altez ($2,129 psf) and Skysuites@anson ($2,165 psf). The lower price for Icon could be due to its age as it was completed in 2007 compared to 2014 for the other two projects. If investors are looking for a landmark development in area, Wallich Residence will be the place to buy. However, its average price of $3,483 psf may put it out of reach for all except those with deep pockets.

Our final thoughts

The revised ABSD is an important intervention measure for the overall health of the residential property market. The tighter TDSR prevents home buyers from borrowing beyond their means, given the outlook of higher interest rates in the coming years.

Developers with newly launched projects may need to re-adjust their pricing strategy and rejuvenate their marketing campaign. Developers with newly purchased land must come up with niche and unique developments that meet the wish-list of potential buyers.

For first-time Singaporean and PR home buyers, it may be a good time for them to hunt for a deal and take this window of opportunity to purchase their first home. Foreign buyers will take some time to digest the implications of the new measures, but Singapore’s attractiveness as a safe investment haven should continue to appeal to them.

Older developments may not attract as much attention as their newer neighbours, but may prove to be an overlooked gem.

Check out the latest listings near Parc Clematis, Midwood, The Florence Residence, One Pearl Bank, Midtown Modern, The M, Midtown Bay, Jervois Mansion, Petit Jervois, Regent Park, Central Green Condominium, Highline Residences, Icon, Skysuites@anson, Wallich Residence, Outram Park MRT Station, Bugis MRT Station, Clementi MRT Station, Tiong Bahru MRT Station

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