By Mr. Propwise
There has been lots of media coverage of a wide array of numbers from the URA’s release of the second quarter 2012 real estate statistics, but in this article I’d like to focus on what I believe to be the three key trends that anyone interested in the property market should take note of, amongst the many released.
1. Residential Property Price Trend has Reversed
From the URA’s recent update of the 2Q2012 Private Residential Property Price Index (PPI), property prices have managed to defy gravity and registered a slight increase in the quarter to reach an all-time high. The 2Q2012 URA PPI hit 206.8 and was up 0.4% on a quarter-on-quarter basis. At the current levels the price index is 16.5% above the previous 2Q2008 peak, and 14.0% above the previous all time high in 2Q1996.
Figure 1 – URA Property Price Index till 2Q2012
This increase of 0.4% comes after the rate of growth of the PPI had slowed for nine consecutive quarters (i.e. property price growth had been decelerating continuously), followed by a slight decline in 1Q2011. It appears that the strength of property demand has outweighed concern over the slowing economy, the worrying global economic situation especially with the troubles in Europe and weak growth in the US, and the dampening effect of multiple rounds of government measures.
Figure 2 – Change in Property Price Index till 2Q2012
The rate of price growth differed across the various market segments. In the Core Central Region and Rest of Central Region, prices of non-landed private residential properties increased by 0.6% versus a decrease of 0.6% in the previous quarter. In the Outside Central Region, prices increased by 0.6%, a slowdown from the 1.1% increase in the previous quarter.
The key question on investors’ minds would be whether the 0.4% increase in 2Q2012 was just a blip in a downtrend or the reversal of the downtrend. I believe that it’s just a blip and that housing prices are likely to remain weak in the medium term due to the weak global economic environment and upcoming supply.
2. Developer Sales are Falling While Resales are Heating Up
Developer sales fell by 17% quarter-on-quarter to 5,402 units in 2Q2012, compared with the 6,526 units sold in the first quarter. The take-up of shoe-box units (those smaller than 50 square meters) accounted for 19% of the units sold, down from 27% in the previous quarter.
The drop in developer sales was only partially explained by the 11% drop in the uncompleted private residential units launched for sale in 2Q2012 to 6,115 units. The sell-through rate of the units launched had also fallen from 99% in 1Q2012 to 87% in 2Q2012, suggesting that buyer sentiment for new launches was cooling.
But buyer sentiment was heating up for resales, which jumped 58% to 3,487 units in 2Q12, and accounted for 37% of all sales in the second quarter, higher than the 24% from the previous quarter. Perhaps property buyers have finally wised up to the fact that prices in the secondary market are often significantly lower than the new launches, and there are thus more bargains to be found.
On the whole transaction volumes increased slightly by 2% from 8,732 units in 1Q2012 to 8,889 units in 2Q2012. Property demand and the appetite for property are still strong, but demand is shifting from new launches to the resale market.
3. Industrial Property Prices are On Fire
While many market watchers have their attention on the residential market, one segment that has gone through the roof is industrial property. In 2Q2012 the Industrial Property Price Index registered a stunning 8.4% quarter-on-quarter growth to hit 168.4, an all-time high. This was the eleventh quarter of growth, and unlike the residential property segment, the rate of growth is accelerating.
Figure 3 – Industrial PPI till 2Q2012
Since 2009Q3, the Industrial PPI has grown by an astonishing 86.3%, versus just 34.0% for the residential PPI. And as the Rental Index for Industrial Property has only increased 37.7% over the same period, this suggests that: i. Yields for industrial property are compressing and ii. There’s likely some element of speculation in the industrial property market.
We’ve previously written several articles about the industrial property market, including an explanation of the URA guidelines and a discussion on shoebox factories. Suffice to say that the continuing surge in industrial property prices has increased the policy risk for this sector. Measures to keep the minimum size of industrial units at 150 square meters and crackdowns on illegal usage of the space by non-industrial users could be just the beginning. Investors in shoebox industrial units will have to seriously ask themselves who the likely tenant for the property they have bought will be.