Week in Review – 14 August 2014

Falling resale and rental prices of private and HDB homes lead to increase in resale volumes and rental transactions, Increased vacancy rates and cautious developers, Property experts suggest a review of older cooling measures
Falling resale and rental prices of private and HDB homes lead to increase in resale volumes and rental transactions
The Singapore Real Estate Exchange (SRX) reported a further decrease in resale prices of non-landed private homes and Housing and Development Board (HDB) flats from June to July. Prices dropped 1.3 per cent and 0.9 per cent month-on-month for private homes and HDB flats respectively, bringing prices to their lowest since 2012. The lower prices brought about a slight uptick in resale volumes, with a one per cent increase in private home transactions and a 1.9 per cent increase in HDB flat transactions, from June to July. The resale volume for HDB flat transactions however, dropped by 10 per cent “from a year-on year perspective”, stated Ms Christine Li, Head of Research and Consultancy at OrangeTee to Today newspaper, also indicating that she “expects demand to stay subdued and resale prices to depreciate by around 5 per cent for the whole of this year”.
Specific to non-landed private homes, prices in the Core Central Region (CCR) were most affected, falling by four per cent, followed by prices in the Rest of the Central Region (RCR) at 1.1 per cent and those in the Outside Central Region at 0.6 per cent. According to Mr Chris Koh, Director of Chris International, in a Today interview, prices in the CCR have fallen as they were considered to be on “the high side” and loans are harder to get with the Total Debt Servicing Ratio (TDSR). He also noted this could also be attributed to fewer foreigners purchasing because of the Additional Buyer’s Stamp Duty (ABSD), since “foreigners are the majority of buyers in the CCR”.
For the public housing market, prices of three-, four- and five-room flats declined by one, 1.8 and 0.4 per cent, respectively. Executive flat prices were however on the uptrend, by 0.1 per cent. Mr Nicholas Mak, Executive Director at SLP International, echoed Mr Koh’s sentiments about the cooling measures affecting demand for HDB flats. He told Today, “Loan restriction rules…continue to dampen the demand for HDB flats as some potential buyers face limitations in their loan applications” and added that “new permanent residents (PRs) have to wait three years from the date of obtaining their PR status before they can buy HDB resale flats, thus the demand for HDB resale flats is lower, while the supply is (increasing) as more and more HDB flats complete their five-year minimum occupation period”.
The downward trend of resale prices has resulted in an increase in rental demand in both the private and public property segments. For private homes, rental volume increased by 5.3 per cent in July, while rental volume for HDB flats increased by 1.7 per cent; rental prices for both segments have however dropped by 0.8 per cent and 1.5 per cent respectively. Mr Eugene Lim, Key Executive Officer at ERA and Ms Li both told Today in separate interviews that rental prices are expected to drop further due to the upcoming supply of private homes, along with efforts in reducing the foreign talent pool. A recent report by Jones Lang LaSalle (JLL) on the increase in tech companies setting up or expanding offices in Singapore, as well as Asian operations for companies such as L’Oreal, may change this trend. JLL stated that “Singapore’s pleasant lifestyle has made it a draw for companies looking to attract top talent”. Some of the companies noted in the report include eBay, Facebook, Google, LinkedIn and General Motors. 
Increased vacancy rates and cautious developers
The Urban Redevelopment Authority (URA) reported that 7.1 per cent of completed private homes remained vacant in Q2 2014. While this is the highest vacancy rate in eight years, property observers such as Mr Alan Cheong, Senior Director of Research and Consultancy at Savills Singapore, commented to Channel NewsAsia that “6 to 7 per cent is the normal or healthy vacancy level in Singapore”, with the current price conditions and cooling measures in place. He cautioned however that “vacancies will increase as more projects get completed in the course of the next couple of years”, even heading “towards double-digit levels like 10, 11 per cent”.
URA gauges that 24,893 homes will be completed in 2015 and an additional 29,582 homes completed in 2016. Only 20,023 homes are expected to be completed in 2014 and only 14,400 were completed in 2013. Mr Nicholas Mak, Executive Director at SLP International, indicated to Channel NewsAsia that investors with units in the OCR may encounter challenges renting out their units due to the lack of amenities and accessibility. He explained that “when there is more supply of available units for lease and slowing demand in the leasing market, some of the tenants will have a flight to quality – better located ones or those located nearer to their offices”. According to SLP, the vacancy rate in the OCR was at its peak in Q2 2014 at 5.6 per cent. Developers with projects that are tagged with a Qualifying Certificate are required to sell all units two years after receiving the Temporary Occupation Permit. According to the Singapore Land Authority, from January to May alone, 11 developers have applied and paid for an extension of time to complete the sale of their units.
The slowdown in demand and fall in prices appear to have resulted in more conservative bids for two Sengkang 99-year leasehold sites selling under the Government Land Sales (GLS) programme. A consortium formed by CEL Development and Unique Residence were the highest bidders for both sites, at S$438.20 per square foot per plot ratio (psf ppr) for the 178,723 sq ft Fernvale Road Parcel A and S$448.35 psf ppr for the 187,441 sq ft Fernvale Road Parcel B. The bids were below what analysts had estimated, in the range of S$450 to S$500 psf ppr. Ms Christine Li, Head of Research and Consultancy at OrangeTee, told Channel NewsAsia that “selling prices could start from about S$970 to S$990 psf” for the sites that can potentially yield about 1,100 private homes in total.
Property experts suggest a review of older cooling measures 
While Minister for National Development Mr Khaw Boon Wan said in Parliament last week that relaxing cool measures now would be premature, panellists at the annual National Real Estate Congress feel otherwise.  Property experts such as Mr Dennis Yeo, Managing Director of Colliers International and Mr Eugene Lim, Key Executive Officer at ERA, said that the Seller’s Stamp Duty (SSD) and the Additional Buyer’s Stamp Duty (ABSD) can be reviewed. Today quoted Mr Yeo as saying “I think it’s time for the Government to start looking at whether some of the earlier measures have become redundant because we have a pretty effective TDSR”. Mr Lim said that speculation is limited as shown by the low sub-sales number “across all types of properties” thus it “could be an opportune time to review the measures aimed at tackling speculative buying and selling, which is essentially the SSD”. Sing Tien Foo Associate Professor at NUS, and Seah Seng Choon, Executive Director of the Consumers Association of Singapore, felt however that “the cooling measures continued to act to prevent the formation of a property bubble”. Mr Lim noted that while the ABSD should continue to “prevent foreigners from buying and driving up prices”, it should be removed for local buyers since the TDSR is keeping them in check from “over-gearing”. He also emphasised that “Developers also have a lot of stock to clear”.