By Mr. Propwise

Okay, we know that March home sales were bad. Very bad. According to the URA data, private new home sales fell from 2,793 units in March last year to 480 units in the same month this year – a whopping 83 percent decline. The total number of units sold in 1Q2014 fell to 1,791 from 2,568 in the previous quarter and 5,412 in 1Q2013, a 30 percent and 67 percent decline respectively.

What’s driving the slump?

Analysts have attributed this to the impact of the government cooling measures and Total Debt Servicing Ratio (TDSR) framework, as well as the lack of launches by developers. Launch volumes in the first quarter of this year were the lowest since the Global Financial Crisis (GFC) in 2008. The Santorini and Ascent@456 were the only two projects launched in March.

But many analysts believe that new home sales could pick up starting from the second quarter due to an expected surge of new launches over the next few months. Up to 11 new projects could start going on sale from now till the end of June (versus just seven major launches in the first quarter), which should boost new home sales. So look out for headlines shouting of a recovery in new home sales from April onwards, which is not difficult given the low base effect of March.

But does that signal a market recovery?

No, I do not think so.

While developers can continue to “push” units onto lazier and more gullible buyers with some marketing glitz and gimmicks, the crickets are chirping for homeowners who want to sell their unit.

In fact, the situation is even worse in the resale market than in the primary market.

140421 Figure 1 Figure 1 – Monthly Residential Sales Volume (source:

From Figure 1 we can see both that total residential sales (the blue plus red bars) have collapsed since early 2012, and that secondary market sales (the blue bar) have collapsed even more. Total residential sales at under 1,000 units for the past four months are way below the average of 2,500 to 3,000 units per month.

140421 Figure 2Figure 2 – Developer Sales as a Percentage of Total Sales (source:

Furthermore, developer sales as a percentage of total sales have been steadily increasing since late 2009. Thus the recovery since the GFC has been mainly driven by the flood of ever-shrinking units of new launches, while resale market volumes have been steadily declining over this period.

Who will be buying and renting the flood of upcoming homes?

140421 Figure 3Figure 3 – Private Residential Supply Pipeline as of 4Q13 (source:

This trend begs the question – as these new units start to get completed in large numbers over the next few years, who will the buyers and renters of these units be? The resale market has dried up as the spread between sellers’ asking prices and what buyers are willing to pay grows larger, and the pool of buyers shrink due to the TDSR rules. And the rental market’s growth is now constrained as the immigration taps are gradually tightened (and I’d imagine they’d stay tight till at least after the General Election in 2016).

Developers are under increasing stress too

140421 Figure 4Figure 4 – Developer Monthly Sell-Through Rate (source:

And while many analysts blame the poor March sales on the lack of new launches, the Sell-Through Rate (how many units developers sell versus how many they launch) is also falling, suggesting a growing inability of developers to sell out at launches, and the likelihood of the increasing use of marketing tricks and hidden discounts to move inventory.

140421 Figure 5Figure 5 – Developer Inventory Levels (source:

We’ve seen developer inventory levels creep up since January 2013 to a tad under 7,000 units at the end of March, getting close to their all-time highs. Combined with weakening sell-through rates and a poor outlook due to the prospect of rising interest rates in the medium term, developers are likely to be cautious when buying new land.

And thus we see land prices moderating, as in the recent example of the tender of a 99-year leasehold residential site at Prince Charles Crescent (Parcel B). The winning bid price for the Parcel B site was $820.65 psf ppr, 15 percent lower versus the $960.28 psf ppr paid for the adjacent Parcel A site just two years ago.

To conclude, while we may see developer sales volumes “recover” strongly from April due to the impact of new launches, it may be an empty recovery. You have to dig deeper into the numbers to see what’s really going on.

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