Week in Review – 10 April 2014

In its “Asian Development Outlook 2014” report, the Asian Development Bank (ADB) noted the need for the cooling measures implemented by the government. The report found that there are some risks to the financial stability of Singapore, with the dramatic increase in real estate prices in recent years. According to ADB, “property loans have grown at an elevated rate, and household debt has increased rapidly for three years, to reach 76 per cent of GDP at the end of 2013, with a corresponding increase in the exposure of locally incorporated banks to the property sector”. 

While the ADB recognises cooling measures such as the Total Debt Servicing Ratio (TDSR) are being broadly successful in moderating housing price inflation and containing housing affordability metrics, they advise that risks remain.

Recommendations by the ADB are for the government to continue to “respond proactively to new sources of systemic risk as they emerge, enhance their surveillance and analytical frameworks for assessing the likelihood and impact of emerging systemic risks, and design new policy instruments to effectively respond to such risks”.

Analysts from several firms, including Colliers International, Barclays and OCBC, have concluded that private luxury condominiums are the most affected in the recent property market downturn. 

In a recent flash estimate by the URA, non-landed private properties in the Rest of Central (mid-tier homes) and Core Central (high-end homes) regions showed significant declines quarter-on-quarter. OCBC expects prices to decline by 5 per cent to 10 per cent as oversupply builds. This analysis was based on island-wide vacancy rates of 6.2 per cent in 4Q 2013. OCBC expects prices in the Outside Central Region (mass-market homes) to decline by about 10 per cent to 15 per cent, despite the resilience of property prices in this area.

Barclay’s shared similar sentiments, noting that February’s 724 private home sales by developers represents a sales run-rate of only 8,000 units for 2014. 15,000 new units were sold in private home sales in 2013. They highlighted Rivertrees, Riverbank and The Panaroma as having seen weak sales and Wheelock Properties having taken a write-down of $110 million on The Panorama, potentially indicating a reduction in selling prices. 

Flash estimates by the Singapore Real Estate Exchange (SRX) have shown property buyers may be getting used to the cooling measures. In March, the sales volume of both private non-landed and HDB resale homes were the highest since October last year. There were recorded transactions of 451 non-landed private resale units in March, up 82.6 per cent from February. 

A DTZ report however contradicted that optimistic outlook, noting that the total number of private homes changing hands in Q1 2014 was 906, a 62 per cent decline year-on-year. Transactions in the Good Class Bungalow (GCB) segment have remained positive; DTZ attributes this to GCB buyers purchasing for their own occupation and being less affected by the TDSR and Additional Buyer’s Stamp Duty (ABSD).

A total of 1,319 HDB resale transactions was recorded, up 40 per cent in March from February. This was attributed to transactions at close to or below valuation, an acceptable budget for buyers. HDB resale prices also rose by 0.3 per cent, a rebound from the 1.8 per cent decline in February. Analysts are however cautious about the upturn, advising that the upcoming additional launches of new HDB flats will increase supply and put pressure on prices.

Colliers International reported that Singapore property investment sales climbed 26.8% to $5.58b in 1Q 2014, largely due to sales in the public sector. The real estate firm recorded a surge of 43.7 per cent in total investment sales in the public sector, up 26.4% from the previous quarter.

Investments in prime retail assets also remain strong. Jones Lang LaSalle said in a report released last Wednesday that private ultra-high net worth investors dominated transactions of prime retail assets in the region. In Singapore, Bright Ruby Resources, a private Chinese investment company, acquired the Knightsbridge retail podium for US$921 million.

Cushman and Wakefield, as well as Knight Frank, reported a strong increase of prime Grade A office rents, with Knight Frank forecasting the office sector may see activities in investment deals. Knight Frank noted that “rising rentals and tight supply of prime grade office space may potentially see some office assets changing hands, as global private equity and sovereign wealth funds are still on the lookout for good assets to invest in, especially those that offer good yields.” Cushman and Wakefield reported an active leasing market in 1Q 2014 with firm demand and rising occupancies.