Mixed views on falling prices and transactions
The Singapore Residential Price Index (SRPI) flash estimates released last week by National University of Singapore’s Institute of Real Estate Studies, showed a decline in resale prices of completed non-landed private homes in July. The overall price fell 0.3 per cent from June to July.
Homes in the non-central region saw prices increase marginally, by 0.1 per cent, while central region home prices fell by 0.7 per cent; prices of small units (floor area of 506 sq. ft. and below) in the central region decreased by 0.8 per cent.
CIMB noted in a 31 August report “Prices and volume are likely to remain weak in the short- to mid-term, caused by 1) short term supply pressure, 2) reduction of investment demand and 3) policy restrictions”. The bank expects private home prices to “retrace by five per cent this year, with a through-the-cycle correction of 15 per cent over the next 3 years”. The report also noted that from January to June, private home transactions declined by 57 per cent on a year-on-year basis.
Despite the slowdown in the property market, Chairman of Wing Tai Holdings, Mr Cheng Wai Keung, advised against slashing prices in the luxury home segment. He explained in a Today interview that, “There is no point in lowering the price … it’s almost like retail — you don’t see the high-end, luxury products on a fire sale. If LVMH does that, it is destroying its brand. In the high-end (segment), you’re selling a brand image; not for utility. If it’s for utility, you can never sell at that kind of price.” Wing Tai Holdings has kept the prices of its properties, including freehold Ardmork Park and Le Nouvel Ardmore, intact despite having sold only three of the 43 units on offer. The company has until mid-2016 to sell all the units under the Qualifying Certificate and Mr Cheng intends to “hold…prices (for now) and wait until that time to make a decision”.
Other developers have gone ahead to lower prices of their projects to increase take-up of units. MCL Land, for example, reduced prices of Hallmark Residences located in the Core Central Region (CCR) by about 10 per cent in early 2014.
Singapore homes getting smaller however considered affordable
The common saying “the bigger, the better” rings true in many cases, but not when it comes to homes in Singapore. CIMB noted in its 31 August report that with the median size of homes falling from an average 1,200 sq. ft. to the current 800 sq. ft., most buyers chose smaller units to keep the investment more affordable. With the population-per-housing stock increasing to a historically high level of 4.4, CIMB suggested that there are now more people crammed under a single roof than before, implying pent-up demand. Based on CIMB estimates however, housing is still relatively affordable. The bank noted that Singapore now has a lower median home price to income ratio for both private and public housing, compared to the mid-1990s, 2007 and 2010. The report also stated that “Mortgage instalments as a percentage of monthly wages is at a low, due to the still low interest rate environment. Even after taking into account a higher mortgage rate of 3.5 per cent, used to assess homebuyers affordability under the Total Debt Servicing Ratio limit, housing still remains relatively affordable”.
Commercial real estate services firm CBRE reported that only one Sentosa transaction took place in H1 2014 – a bungalow on Treasure Island that sold for S$17 million (S$1,506 psf) – compared with 18 bungalows sold in H1 2013. The same property was sold in 1H 2010 for S$17.8 million. CBRE attributed the stagnant state to the additional buyer’s stamp duty (ABSD) of 15 per cent imposed on foreign buyers, as well as uncertainty in obtaining the LDAU (Land Dealings (Approval) Unit) approval to buy. The firm nevertheless expects sales activity to pick up in H2 2014, with an increase in efforts by the developer of Pearl Island to its remaining bungalows, as well as Sentosa Cove’s exclusive resort-like waterfront living, attractive to high net worth individuals (HNWI).
Non-landed residential site development charges to fall in slowing property market
For the next six months, the development charges (DC) for approximately half of the geographical sectors in the non-land residential segments will be reduced. This reduction (the first since March 2012) is the result of efforts by the government to curb rising prices.
The Urban Redevelopment Authority (URA) yesterday said that the non-landed residential sites’ DC charges will decrease between 2.8 and five per cent for 55 of 118 sectors during September to February, in comparison with the previous six months. Calculations from property consultant Colliers International displayed a 1.6 per cent average reduction across the segment. All the sectors’ DC rates remained the same, except for two sectors that witnessed a decline of five per cent. These two sectors cover Prince Charles Crescent, Alexandra Road, Tanglin Road and Telok Blangah Heights.
Mr Ku Swee Yong, Chief Executive Officer of Century 21 commented to Today that the fall in DC is not surprising, given the downward trend in URA price index, particularly for the Core Central Region. He added that “several new launches in those areas, where the chief valuer has lowered DC rates, also did not do so well”. Similar sentiments were shared by Ms Chia Siew Chuin, Director of Research and Advisory at Colliers International. She said in a Today interview that developers are more conservative in their bids for Government Land and that residential collective sales were unsuccessful this year.
On the other hand, land for commercial use will see DC rates rise. Of 118 sectors, 26 will see an increase by five to 11 per cent. The remaining 92 sectors will see rates remain unchanged. The average increase for the DC charges will be two per cent.