Week in Review – 3 July 2014

Private and HDB resale prices continue to drop

URA announced that 2Q 2014 marks the third consecutive quarter of decline in private residential property prices. The price index “fell 1.1 per cent, from 211.6 points in 1Q 2014 to 209.3 points in 2Q 2014.” Prices in the Core Central Region (CCR) fell the sharpest, at 1.5 per cent and are expected to fall by another one to two per cent per quarter. Prices in the Outside Central Region (OCR) and Rest of Central Region (RCR) fell by 1.1 per cent and 0.6 per cent respectively. This quarter’s overall decline in resale prices came despite May’s surprising 0.8 per cent climb, according to flash estimates by Singapore Residential Price Index. Commenting on May’s performance, Mr Nicholas Mak noted that buyers in the resale market could have been encouraged by the relatively strong performance in the primary market.

Meanwhile, HDB resale prices fell for the fourth consecutive quarter, a 1.3 per cent decline in 2Q 2014, after sharp drops of about 1.5 per cent in the two previous quarters. According to a PropNex report, this is attributed to the Mortgage Servicing Ratio, stating that “With smaller loans, some buyers can no longer afford to upgrade to larger flats.” In a Today interview, Mr Ku Swee Yong, Chief Executive of Century 21, added that another reason could be that “families who face loan curbs now have the option of upgrading to brand-new flats under the large supply of Build-to-Order Projects.” Other reasons for weakening HDB resale prices include the three-year wait for new Permanent Residents who want to buy resale flats and singles now allowed to buy two-room BTO flats in non-mature estates. Mr Mohamed Ismail, Chief Executive of PropNex, commented that it will be hard for resale prices to regain momentum, and “this is an opportune time for those considering upgrading.”

HDB – Dawson estate to undergo renewal; Potong Pasir HUDC privatised
HDB has announced that 31 residential HDB blocks at Tanglin Halt Road and Commonwealth Drive, Tanglin Halt Market, Commonwealth Drive Food Centre and seven shophouse blocks in Dawson estate will undergo redevelopment under the Selective En Bloc Redevelopment Scheme (SERS). Twenty high-rise residential blocks in five new housing projects will be built on Margaret Drive, Dawson Road and Strathmore Avenue by 2020 to re-house residents from the blocks undergoing redevelopment. Mr Nicholas Mak, Executive Director for Research and Consultancy at SLP International, told Channel NewsAsia that although “the more suitable type of housing could be HDB … the authorities may reserve one or two land parcels to be developed into private housing.” Mr Ku Swee Yong, CEO of Century 21 Singapore, agreed that developers will be willing to pay more for the site for private residences, as “the location is a mature precinct and if you were to develop one or two more private residential projects there, you could in theory get people who are upgrading from the older HDB flats into the new private residential units.” More amenities will also be available to residents in Dawson estate, including 30 shops, a supermarket, four eateries and communal facilities such as childcare, education, student and senior citizen centres. So far, estates in Yishun, Punggol, Jurong Lake, East Coast and Hougang have undergone similar changes.

Meanwhile, Blocks 110 to 112 Potong Pasir Avenue will be the latest HUDC estate to be privatised, with residents hoping for an en-bloc sale. Despite a weak market for such transactions, Mr Eugene Lim, Key Executive Officer at ERA said in a Channel NewsAsia interview that the site would be popular with private developers due to its small land size, location on the city fringe and lower payable quantum.

Singapore overtakes Hong Kong as most transparent real estate market in Asia
Singapore has placed 13th in JLL’s Global Real Estate Transparency Index 2014, the top Asian country, while Hong Kong slipped from 11th in 2012 to 14th this year. Singapore scored well in indicators of performance, market fundamentals, governance of listed vehicles and regulatory and legal sub-indices. Compared to mature Western markets however, Singapore did not fare as well. Market transparency is what attracts investors, according to analysts such as Mr Donald Han, Managing Director of Chesterton, who told Channel NewsAsia, “If they are risk-averse, they would need to put more allocation to more mature transparent markets, but these markets would generate lower returns.”

Moving forward, JLL suggested several factors that could improve transparency, including new technology, better use of social media, increased knowledge-sharing and increased demand for transparency from governments and commercial organisations.

More properties up for auction in 1H 2014
According to Knight Frank, the number of properties put up for auction increased 12.1 per cent year-on-year to 251 units in 1H 2014, compared to the same period in 2013. Analysts at Colliers International explained that the increase could be due to weak activity in the resale market, dampened by successive rounds of cooling measures. Also, borrowers who have defaulted on their loans are having difficulty finding buyers in the resale market due to Total Debt Servicing Ratio (TDSR) and Additional Buyer’s Stamp Duty (ABSD), and so resort to putting their properties up for auction. Despite the significant increase, success rates of mortgagee sales fell from 28 per cent in 2H 2013, to 14 per cent in 1H 2014, compared to an increased success rate of properties under owner sale, from one per cent to two per cent in the same period. Knight Frank attributes this to “the increasing willingness of owners to be more realistic in their asking prices … as potential buyers wait on the side lines in anticipation of price moderations.” Owners of landed properties were hit especially hard, according to Knight Frank, citing the 66.7 per cent increase quarter-on-quarter to five units in 2Q 2014, resulting in eight landed properties put up for auction in 1H 2014, double the amount in 1H 2013. It has become harder for landed homeowners to service their mortgage payments due to a combination of a relatively higher total quantum of landed properties and the TDSR framework.

Three housing plots released, adding up to 1,700 homes
The last group of residential sites released for the 1H 2014 Government Land Sales programme are two adjacent private residential sites at Fernvale Road and an Executive Condominium (EC) site at Choa Chu Kang Drive. The sites at Fernvale Road occupy an estimated 178,723 sq ft and 187,441 sq ft, potentially yielding 550 and 580 units respectively, whereas the site at Choa Chu Kang occupies roughly 574,388 sq ft and can provide up to 535 new units. All three sites are on a 99-year leasehold.

Developers are expected to bid below S$500 psf per plot ratio for the Fernvale Road sites. Mr Eugene Lim, Key Executive Officer at ERA, told TODAY that “developers are watchful of weak responses to new sales launches.” Mr Ku Swee Yong, Chief Executive of Century 21, added the area has sufficient supply and upgrader demand was affected by the slowdown in the HDB resale market. Similarly, the EC site at Choa Chu Kang could see moderate interest, since new rules allow developers to launch EC units for sale only 15 months after the land is acquired, or after the physical completion of foundation works.