Resales and private home prices expected to fall this year
2011 Q4’s estimates did not bode well for 2012’s private homes and resale flats prices. According to URA’s private residential property price index, there was only a 0.2% increase from Q3 to Q4 2011, much lower than the 1.3 % increase from Q2 to Q3.
With the uncertain economy and the newly implemented cooling measures, prices are expected to fall but how much they will fall is the question. Developers have to lower the prices but need to adjust it to the right level so that buyers will be attracted without expecting too much.
With the ABSD, the private residential property price index for 2012 is expected to fall by 10-15%, with the luxury sector suffering the worst since most buyers in this sector are foreigners who have to pay the 10% ABSD. Overall demand may also fall by 15-20%, leading to a 10-15% fall in prices of homes in the luxury sector and a 5-10% fall for mass-market condos.
While the price index for non-landed homes in Outside Central Region was the highest relative to other sectors, the 0.6% increase from Q3 to Q 4 was much smaller than the earlier increase of 2.1%. Prices had earlier rose quickly as there was high demand from investors and HDB upgraders. The price index for non-landed homes in CCR has also increase by 0.5% from Q3 to Q4, slight lower than the earlier 0.7%. Likewise, the rise in HDB resale flat prices was also smaller in Q4, 1.7% compared to the earlier increase of 3.8%.
The demand of HDB resale has fallen with the increase in supply of Build-To-Order (BTO) flats and the increase in income ceiling for buyers, leading more buyers to turn to BTO flats instead. Since the cash over valuations had stabilised in Q4 2011, it may fall by 5-8% should there be a recession in 2012. The fall may be worse if a higher percentage of BTO flats are allocated to second-time buyers, since it will draw even more buyers away from purchasing HDB resales. However, if there is no recession, the prices may still rise by 3-5%.
Abundant projects launched before Chinese New Year
The period before Chinese New Year, usually a slow period for project launches finds itself overwhelmed this year with several launches.
Projects launched include Qingjian Group’s 99-year leasehold condominium Riversound Residence, City Developments Ltd (CDL)’s economic condominium (EC) The Rainforest and Low Keng Huat (LKH)’s Design, Build and Sell Scheme project Parkland Residences.
This may be due to the recent introduction of the ABSD and the government’s statement that measures will be introduced to stabilise the property market. Developers may be launching their projects earlier for fear of new cooling measures and potential financial loss. It may also be to test the reactions of buyers to the cooling measures by offering projects with attractive prices and amenities.
For example, the 680-unit Parkland Residences located near Upper Serangoon Road has four 18-storey towers which house 721 sq ft three-room flats, 990 sq ft four-room flats, 1,173 sq ft five-room flats and 1,206 sq ft five-room premium flats consisting of four bedrooms with price ranges of $359,000 to $404,000, $485,000 to $571,000, $606,000 to $676,000 and $608,000 to $706,000 respectively. While affordably priced, it may not be enough to sway buyers deciding between flats, DBSS flats or ECs. The e-applications for Parkland Residences will end on Jan 10.
466-unit The Rainforest located near Choa Chu Kang Avenue 3 is offering 818 to 1,033 sq ft two-bedroom plus study units, 947 sq ft three-bedroom unit and 1,238 sq ft four-bedroom units at prices from around $601,000, $688,000 and $896,000 respectively; prices attractive to upgraders. It also offers penthouses with sizes ranging from 1,819 to 2,174 sq ft. Applications are open till Jan 9 with bookings on Jan 11.
590-unit Riversound Residence located at Sengkang East Avenue consists of six 18-storey blocks housing 452 sq ft one-bedroom units; 1,184 sq ft three-bedroom dual-key units and 2,508 to 2,734 sq ft four-bedroom penthouse units at an average price of $850 psf before early-bird discounts.
Buyers’ reaction to ABSD: return units to developers
Some buyers of projects launched in November and early December have returned the units to the developers, likely a result of the ABSD. These buyers would have to give up 1.25% of the unit’s price but may be willing to do so if they foresee a steep decline of private home prices.
4% of buyers at CapitaLand’s Bedok Residences and The Palette condo at Pasir Ris chose not to exercise their options. 12% of the buyers at Archipelago condo have also returned their units to the developer. The higher percentage of units being returned for the Archipelago may be due to the relative longer period of time for buyers to exercise their options, having been launched later than the former two projects.
49% of EC resale transactions made by foreigners
In the first 11 months of 2011, foreigners including PRs bought a total of 383 resale ECs or 49% of the 775 resale transactions. There were 108 transactions made by non-PR foreigners, most of whom were PRC and Indian nationals with 70 and 19 transactions respectively. This is likely due to EC resale prices being a good 13% lower than that of private resale homes located in the same region.
Developers have also sold 2,058 EC units, breaking both new sales and total transactions record. The record sales were likely due to the high prices of condominium units, leading buyers to turn to ECs instead, since ECs are more affordable with their prices 20-25% lower than those of 99-year-leasehold condos located in the same region. Furthermore, ECs are more attractive since they are larger in size (900 to 1,300 sq ft) and hence more family-friendly.
With the raising of the income ceiling of ECs to $12,000, demand for ECs is likely to continue increasing. However, some buyers may choose to buy private housing instead, anticipating a price fall with the introduction of cooling measures in the private sector, upcoming influx of supply and the uncertain economy.
Rents in malls to remain stable in Q1 2012, but may fall later
After two years of boom from strong economic growth, rental rates in the malls may either remain stagnant or fall in 2012. An economic slowdown in 2012 is expected, with businesses dealing with the necessities holding more strongly than businesses selling luxurious items. Suburban rents have increased in Q3 2011 by 2.9% to $29.75 psf per month but rents in prime downtown locations like Orchard had remained stagnated at $31.60 psf per month in Q4 2011.
Consultants generally agree that rents may be stable in Q1 2012, but may fall later as consumers spend less and retail suffers, stagnating rental growth. There could be a 10% adjustment in rents, but more popular malls and prime retail space may not be affected as much. While rents in prime retail areas tend to increase more when the economy is good, they also suffer greater fall during economic downturns, unlike suburban malls which are more resistant as there are less competition.
There is also an upcoming supply of 756,000 sq ft worth of retail space, 38% of which are from suburban malls. This increase in supply, added to the tenant’s unwillingness to accept rent hikes, will likely hamper the growth of rental rates.
EOI exercise held for six adjacent Little India shophouses
An expression-of-interest exercise is being held for six conjoined three-storey shophouses located Syed Alwi Road in Little India. The total floor area on the three adjacent freehold plots with a total area of 8,138 sq ft came up to 18,500 sq ft and has an indicative price of $24-25 million, or about $1,297 psf. It will likely attract investors looking to invest in alternative sectors after the cooling measures in the residential sectors, as well as hoteliers looking to turn these shophouses into a backpackers’ hostel or boutique hotel. These shophouses built in 1950s currently serves two purposes – retail of hardware and bicycles on the first level, and homes on the remaining two levels. The exercise will close at 3pm on Jan 19.
Investors may not turn to industrial sector as a result of ABSD
There have been fears that the cooling measures introduced in the residential sector would result in investors turning their attention to the industrial sector. However, this may not necessarily happen, judging by reactions to past cooling measures. For example, an earlier increase in the SSD rate resulted in a 31% increase of sales in the industrial sector but the increase in proportion of companies buying at 34% far exceeds the increase in proportion of Singaporeans buying at 21%. Even after the introduction of several cooling measures over the past years, 70% of industrial strata units transacted were purchased by companies, with the remaining 25% and 5% by Singaporeans and foreigners respectively.
Even when the number of Singaporeans purchasing such units has increased, the proportion has decreased from 35% in Q2 2009 to 21.8% in Q3 2011. This is likely due to the higher risk involved with the shorter tenure, and their lack of understanding of the sector and the restriction on using CPF for industrial property. Furthermore, they have to pay GST and interest rates for industrial properties are also much higher.
Freehold ELDIX, an industrial development, launched by EL Development
EL Development has launched ELDIX, a freehold industrial development located at No 11 Mandai Estate. The 169-unit development zoned Business 1 consists of units with worth of space, and most comes with a 6m ceiling height. Units in the 169-unit development range from 1,388 sq ft to 1,862 sq ft in size, most having a 6m ceiling height and a 10 kilonewton per sqm floor loading provision and those on the first to 11th floors are accessible by vehicles with the help of a 20-foot ramp. The price of $470 psf is less than 20% higher than leasehold prices, considered reasonable since freehold strata-titled industrial developments are uncommon.