Recalibrating For Sustainability

Residential Market Watch Q3 2018

Market responds to cooling measures

The cooling measures announced by the government on 5 July threw the residential market into a frenzy. Within a span of five hours, over 1,000 units were sold from three new projects as buyers rushed to beat the midnight deadline to avoid paying the new higher Additional Buyer’s Stamp Duty (ABSD) rates.

The 1,000 units came from three projects that were launched that night: over 500 units from Riverfront Residences in Hougang, around 300 units from Park Colonial at Potong Pasir and some 200 units from Stirling Residences in Queenstown. For the rest of the quarter, response to new launches was patchy as potential home buyers weigh affordability with opportunity cost.

The residential price index edged up by a mere 0.5% q-o-q, a far cry from rises of 3.4% in Q2 and 3.9% in Q1.  This moderate price increase shows that the key objective of the cooling measures, which is to achieve a more gradual but sustainable price  growth, has been met.

By regions, only prices in the Core Central Region (CCR) reflected an increase of 1.3% in Q3. Prices in the Rest of Central Region (RCR) declined 1.3% q-o-q while those in Outside Central Region (OCR) eased by 0.1%. We attribute the bigger price correction in RCR to the large supply of new projects and developers’ competitive pricing to sell as many units as possible. Besides Park Colonial and Stirling Residences, six other projects in RCR were offered in Q3: Daintree Residence, Jadescape, Jui Residences, Mayfair Gardens, The Addition and The Tre Ver.

Sizing up the impact

After the bounteous sales in July, new sales fell to around 500 units in August (which coincided with the 7th month in the Lunar calendar) and 900 units in September. In all,  3,012 new homes were sold in Q3, summing up to a total new sales of 6,959 units in the first nine months of 2018, 20% lower than the volume in Q1-Q3 2017.

In the secondary market, 2,672 resale homes were transacted, the lowest quarterly volume since Q1 2017. Nevertheless, this totals up to 11,038 resale transactions for Q1-Q3 2018, 12% higher than the 9,817 homes sold over the same period in 2017.

Including 81 subsales, total home sales in Q3 numbered 5,765 units, which is 20% lower than the volume in Q2.

Zooming in on the luxury segment, 13 GCBs were sold along with 1 bungalow in Sentosa Cove and 61 luxury apartments. This is a drop of 42% from the 8 GCBs, 4 Sentosa Cove bungalows and 119 luxury apartments sold in Q2 2018. These figures show that the cooling measures have a greater impact on  the Sentosa Cove and luxury apartment segments than on the GCB segment. The reduced sales in the first 2 segments could be attributed to a drop in foreign and permanent resident (PR) buyers who are hit by the higher ABSD rates. As GCBs are restricted properties which only locals can buy, the segment was relatively more resilient.

Looking at the market as a whole, the caveats lodged for all transactions in Q3 show that 4,433 buyers (80%) were Singaporeans, 752 buyers (14%) were PRs and 307 buyers (6%) were foreigners. These numbers are lower than in Q2: 5,557 Singaporeans (79%), 1,034 PRs (15%) and 375 foreigners (5%).

The cooling measures involve raising the ABSD for home buyers and reducing the loan-to-value (LTV) ratio by 5 percentage points for all housing loans granted by financial institutions. For Singaporeans and PRs buying a second, third or subsequent residential property, the ABSD is raised by 5 percentage points. For foreigners, the ABSD is raised by 5 percentage points; while for entities including companies, it is raised by 10 percentage points.

As for developers, they have to pay an ABSD of 5 per cent that is non-remittable upon the purchase of residential development sites. If they fail to complete the residential project as well as sell all its units within 5 years of acquiring the site, they will be liable to pay another ABSD of 25 per cent with interest.

The hike in the costs of acquiring residential land not only shaved the prices which developers were willing to pay for land, it also brought the en bloc sale cycle to the end of its season. From 19 en bloc sales each in Q1 and Q2, only 5 deals were closed in Q3. Two of the en bloc deals sealed in first half of 2018 – Fairhaven at Sophia Road and Teck Guan Ville at Upper East Coast Road – were aborted. The reasons quoted were the dampening effect of the cooling measures on the market, higher acquisition costs and rising interest rates.

Rental market & vacancy

The rental index continued its recovery for the third consecutive quarter, albeit a marginal q-o-q rise of 0.3% in Q3. In total, it has gained a total of 1.6% since end-2017.

Geographically, the rental index for RCR had the best showing of a 1.5% q-o-q rise, followed by the OCR index with a 0.9% rise. The rental index for CCR, however, turned south by 0.9% in Q3.

The strengthening rental market could be attributed to a reduction of properties for rent due to a rise in demolitions of developments which had been sold en bloc as well as a smaller number of new completions. Only 1,088 new homes were added to the housing stock, down from 1,327 units in Q2 and 1,977 units in Q1. As a result, the number of vacant homes fell by 3.7% q-o-q from 26,064 units to 25,105 units, reflecting a vacancy rate of 6.8%.

Major completions in Q3 included The Wisteria (216 units), Thomson Impressions (288 units), Tre Residences (250 units) and Kallang Riverside (212 units).  

Supply in the pipeline

Following the flurry of successful en bloc sales in 2017 as well sites sold from the government land sales programme, several new projects have obtained approval for construction in Q3. The major ones are  Amber Park (616 units), Cuscaden Road (200 units), Mattar Road (266 units), Silat Avenue (1,101 units), former Sixth Ave Centre (284 units), former Tulip Garden (672 units), former Florence Regency (1,410 units) and former Katong Park Towers (290 units).

URA statistics showed that there is a supply pipeline of 50,330 units with planning approvals. Of this number, 30,467 units remained unsold as at end-September, 13% more than the 26,943 units at end-June. The number of unsold units comprised 12,207 units (40%) from projects that were either launched or not launched yet and 18,260 units (60%) from those without prerequisites for sale.

Taking a more positive view, the cooling measures came at a good timing with regard to future housing supply. Supposing the annual demand for new homes is around 9,000 units, it will take at least 5 years to clear  the 50,330 units. The cooling measures not only  help to put brakes to developers’ insatiable appetite to acquire sites, they will help developers to focus on selling all the units and complete the projects by the end of 5 years so that they need not pay the 25% ABSD with interest.

Fundamentals remained healthy

Singapore’s economy is expected to achieve a GDP growth of 2.5% - 3.5% in 2018, and unemployment rate to stabilise at 2.1%. The ability to keep jobs will enable resident households as well as foreign skilled labour to continue to support the demand for housing. The ease of doing business will continue to attract foreign investors here.

With the measures in place, home prices will grow at a moderate pace and homebuyers are unlikely to over extend themselves.

We expect home prices to grow by a total of 10% for the whole of 2018. Demand for new homes is likely to fall short of 2017’s by some 10% to around 9,000-9,500 units while resale volume is expected to remain at a similar level of around 14,000 units.

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