City&Country: Singapore-- Suburban condominiums continue to drive private home prices

The pace of price growth for private homes has been declining steadily over the past two years. URA’s 3Q flash estimate showed that the private residential price index for 3Q2011 rose 1.3% compared with 2% in the previous quarter. This shows that home prices are stabilising, says Li Hiaw Ho, executive director, CB Richard Ellis Research.

For the first nine months of 2011, the residential price index has risen some 5.6%, which is significantly lower than the 14.4% growth over the same period last year.

However, including the latest 3Q preliminary figures, private home prices are now higher than it was during the last two peaks: 15.9% above the 2Q2008 peak, and 13.4% above the 2Q1996 peak, says Chia Siew Chuin, director of research & consultancy, Colliers International.

Nevertheless the grim global economic outlook also means that homebuyers are also more cautious. “With prices now far exceeding historical peaks, homebuyers are increasingly becoming resistant towards price growth and this has capped prices to some extent,” concedes Colliers’ Chia. “The pace of price growth has in fact moderated for the eighth consecutive quarter since 4Q2009.”

Owing to the more cautious mood and heightened price sensitivity, market activity continued to focus on the mass-market segment. Naturally, the highest price growth was seen in the suburban neighbourhoods or, in URA parlance, the Outside Central Region (OCR), with a q-o-q growth of 2.1%, followed by 1.1% for the city fringe areas, or Rest of Central Region (RCR), and 0.8% for the prime districts and CBD, or Core Central Region (CCR).

The increase in the price index for the OCR and RCR could also have been driven by the strong sales at new projects in areas such as EuHabitat (median price S$1,015 psf) in Jalan Eunos, The Luxurie (S$1,053 psf) near Sengkang MRT station, Seastrand (S$930 psf) in Pasir Ris, and Thomson Grand (S$1,300 psf) off Upper Thomson Road, says CBRE’s Li.

Increased price sensitivity
Price sensitivity has also shown up in the higher take-up rates for one- and two-bedroom units, and projects priced at lower psf prices, notes Donald Chua, CIMB analyst in an Oct 2 report. He notes strong buying interest at A Treasure Trove near Punggol MRT station, where close to 90% of the units have been sold since its launch last month. Likewise at EuHabitat, about 80% of the units have been snapped up to date.

Meanwhile, executive condominiums (ECs) are also gaining popularity after the Ministry of National Development raised the household income ceiling for ECs in mid-August from S$10,000 to S$12,000. The EC Arc at Tampines was the first to benefit as it was launched just after the announcement, and saw strong response, notes CIMB’s Chua. About 220 units were said to be sold via balloting in early September, with prices at an average of S$722 psf.

“We expect to see strong take-up for selected value-for-money mass market projects, while uncertainty continues to weaken sales in pricier mass-market projects and the mid-market and luxury segments,” says CIMB’s Chua.

This can be seen from the marginal price growth of 0.8% for non-landed homes located in the CCR. This is the smallest quarterly growth chalked up since 3Q2009 when the market first rebounded and is also the slowest compared with price growths recorded in the RCR and OCR.

“The recent steep corrections in the stock market and news about global economic slowdown has dampened market sentiment,” says CBRE’s Li. He expects demand for new homes in 4Q to slow down and any price increase to be marginal. “Nevertheless, it will still be a healthy year for the residential market as total demand for new homes is likely to reach 15,000 units, compared with 16,292 in 2010 and 14,688 units in 2009,” says Li. 

For the whole of 2011, the private home price index is expected to increase 5% to 8%, which is less than half of the 17.6% rate of growth in 2010, says Nicholas Mak, executive director of research and consultancy at SLP International.

Impact of global economic situation
Historically, the price index for private property (PPI) declined during the period of 1996 to 1998, 2000 to 2004, and 2008/09, with each period marked by external shocks such as the Asian financial crisis in 1998, tech stock bubble and SARS epidemic in 2000 to 2003 and, most recently, the global financial crisis in 2008.

“Correspondingly, the residential property market was also marked by a high volume of new sales during those periods,” says Chua Yang Liang, head of research for Southeast Asia at Jones Lang LaSalle. “Given the currently moderate level of new sales as compared with resale activity — which again lends further support to the argument that there remains a substantial latent demand — resale market activity will likely continue to support property prices going forward.”

Chua doesn’t expect to see a sudden drop in PPI like in the earlier periods, “unless the eurozone financial crisis takes another negative turn and sends further shock waves across Asia. Otherwise we can expect property price growth to maintain at a moderate average pace of 1% to 1.8% per quarter,” he adds.

JLL’s Chua also notes that despite the continued growth in property prices, rental values for properties in the prime districts have started to fall for the first time since 1Q2008. Average prime rents fell 1.4% q-o-q to S$4.70 psf per month but it is the luxury segment where the falls have been steepest, with an overall drop of 1.9% q-o-q to S$5.13 psf per month, he adds. While not as steep, typical prime properties have also seen rents fall in 3Q2011 by 0.8% q-o-q to an average of S$4.27 psf per month.

“The impact of the current global economic situation is starting to be seen in Singapore, with companies initiating hiring freezes, which in turn has an impact on demand for residential properties, especially in the prime markets where new expatriate staff typically choose to locate,” says Chua.

“This fall in demand, combined with an influx of new supply such as Nassim Park and Cliveden at Grange in the luxury market and City Vista Residences and Soleil@Sinaran in the typical prime market, has put downward pressure on rentals. Increasingly, occupiers are not maximising their housing budgets and are going for less expensive options and/or downsizing their existing properties to reduce accommodation costs.”

As a result, new properties in the Central and East Coast areas are proving increasingly attractive to occupiers — rental values in these areas have remained flat at S$4.50 and S$3.45 psf per month, respectively, in 3Q2011. Activity also remains high for properties commanding rents of less than S$6,000 per month as people look to reduce housing costs.

Landed home prices continue to outpace non-landed in 3Q
Average resale prices in the landed sector continued to outpace the non-landed segment in 3Q owing to the limited stock of landed homes, says DTZ in a report on Oct 6. The average resale price of leasehold landed homes in the non-prime districts increased the most by 3.8% q-o-q in 3Q2011 while the average resale price of freehold landed homes in the prime districts of 9, 10 and 11 saw a q-o-q price increase of 2.8%.

Based on a basket of completed condos tracked by DTZ Research, it was found that the average resale price of leasehold condos in the suburban areas grew at a slower pace of 2.5% q-o-q in 3Q2011.

As for the luxury condos in the prime districts of 9, 10 and 11, the average resale price was unchanged in 3Q2011. “The deteriorating global outlook and higher price quantum led to more cautious and selective buying,” notes DTZ. “Some projects are still experiencing price increases. In a slower market, prices of the better-designed and well-located projects will hold better.”

Condo sales in the CCR made up only 6.8% of total primary home sales and 21.6% of total secondary sales in July and August, notes DTZ. Mass-market home purchases, on the other hand, are backed by HDB upgraders, aided by the rising HDB resale prices and low interest rates, notes Chua Chor Hoon, head of DTZ SEA Research. First-timers and investors are also motivated by the low interest rates to buy for owner-occupation and investment, she adds.

“As many of these buyers are buying for owner-occupation and investment beyond four years due to the seller’s stamp duty measure, they probably take a longer-term view and are thus less worried about the current global economic uncertainties,” notes DTZ’s Chua. “However, if the global outlook worsens and the economy continues to slow, this will eventually affect buying sentiment and lead to less exuberant purchase activity.”

Cecilia Chow is the editor of City & Country at The Edge Singapore. Gwyneth Yeo is a senior photographer there.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 880, Oct 17-23, 2011