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Residential Market Watch Q4 2017

A positive end-note

The private residential market ended 2017 on a stronger note with the price index at 1.1% above 2016 levels and 42% gain in sales volume. This sets the market on track for further growth in 2018.

As expected, the momentum of home sales slowed down in the final quarter of 2017 due to the holiday season. According to developers, 1,864 new homes were sold from new projects in Q4 2017, which was 30% lower than the previous quarter. However, there was a 7% q-o-q increase in resale transactions to 4,226 units.

For the whole year, 10,566 new homes were sold, 43% higher than the 7,972 units sold in the whole of 2016. Resale volume totalled 14,043 units, 78% higher than the 7,901 units sold in 2016.

Despite the lower sales volume in Q4 2017, home prices edged up 0.8% q-o-q for the second consecutive quarter. In total, the price index ended the year at 1.1% above 2016 levels.

The rise in the price index was led by prices in Rest of Central Region (RCR) which rose by 1.8% y-o-y, followed by the 1.4% gain in the Outside Central Region (OCR) and the 0.6% q-o-q rise in the Core Central Region (CCR). Prices in RCR were supported by the strong take-up rate of new projects.

Out of the 10,566 new homes sold in 2017, only 34% were from the newly launched projects. The other 70% were from ongoing projects. The improved sales momentum cleared developers’ unsold inventory at a faster rate than they can replenish their landbank. This explains why there was a phenomenal pick-up in the land sales market in 2017.

Resales the key driver

The resale market showed the best performance in five years with a total of 14,043 transactions. In particular, the resale volume in CCR was four times more than new sales. While it is normal for resales to be more than new sales in the CCR because new supply is always limited, the resales in RCR and OCR also surpassed new sales because developers were running out of new projects to offer home buyers. Since the price index had softened by more than 10% from the market peak in 2013, 2017 offered an opportunity for discerning buyers to pick up prime properties at a bargain, and for those “sitting on the fence” to commit before prices started to climb again.

The CCR resale volume was largely contributed by projects which still have unsold units when they were physically completed in 2016 or earlier. These projects were Skysuites @ Anson (109 units), OUE Twin Peaks (93 units), Leedon Residence (92 units), Gramercy Park (89 units) and Pollen & Bleu (87 units).

Based on the 1,151 caveats lodged for transactions in the CCR in Q4 2017, 112 were luxury homes comprising 11 Good Class Bungalow (GCBs), one bungalow at Sentosa Cove and 100 apartments worth $5.00 mil and above. For the whole of 2017, 433 luxury homes were sold, more than the 293 units sold in 2016.

Return of foreign investors

In tandem with the increase in sales volume from 2014 to 2017, there is a notable increase in the number of foreign and permanent resident (PR) homebuyers. Caveat data for non-landed transactions showed that this number has risen from 3,318 in 2014 to 5,306 in 2017, a jump of 60%. Investors from China, Malaysia and Indonesia were the top three groups. In 2017, their purchases made up 60% of all the purchases bought by all foreigners and PRs, or 15% of total sales volume of 25,010 units.

The return of foreign investors could be attributed to the relatively lower home prices after 15 quarters of decline. As well, the additional stamp duty charged on a foreign buyer is 15% while a foreigner who buys a second property in Hong Kong now pays a 30% stamp duty on the purchase price.

Rental Market & Vacancy

The weakness in the rental market is reflected in the 0.9% q-o-q decline in the residential rental index for Q4 2017. This brings the whole year’s decline to 1.9%, compared to the 4.0% decline in 2016, a sign that rents
could be bottoming out.

Within the non-landed segment, the rental index for OCR led the decline with a 1.0% q-o-q fall while the rental indices for CCR and RCR eased by 0.7% each. However, through the year, the CCR rental index showed the largest magnitude of a 2.0% decline, followed by a 1.5% in OCR and 1.3% in RCR.

The number of vacant units fell by 5.2% q-o-q to 28,560 units, translating to an island-wide vacancy rate of 7.8%, down from 8.4% in Q3 2017. The reduction in vacant units could be attributed to more families moving into the newly completed homes during the year-end holidays. In addition, the number of new completions in 2017 was the lowest in four years. 16,449 new homes were completed in 2017, compared to the annual average of 19,900 homes in 2014–2016.

Supply in the pipeline

As at end-December, the unsold units that were under construction stood at 18,891 units, marginally lower than the 19,071 units a year ago. Unsold units that were “launched and not launched” for sale dwindled to 4,387 units, the lowest ever recorded. If it were not for the increased land sales activity in 2017, the supply pipeline would have been lower. With nearly 19,000 units in hand and based on the 10,566 new homes sold in 2017, this potential supply could be absorbed in less than two years. Mindful of this, developers stepped up their efforts to acquire new development sites.

Developers ramped up landbanking efforts

The strong buying sentiment in 2017 led to the sell-out of several major projects like Alex Residences, Commonwealth Towers, NorthPark Residences, Principal Garden and The Santorini. As developers’ landbank was depleted, the need to acquire new development sites became more urgent. Moreover, they need to take into account the nine to 18 months
required before a project can be launched for sale.

In Q4 2017, only two residential sites were released by the government for sale, namely Jiak Kim Street and Fourth Avenue. Both sites attracted strong bidding by developers and were sold at $955 mil/ $1732 psf/plot ratio and $553 mil/ $1,,540 psf/plot ratio. Unsurprisingly, developers turned to private supply and acquired some 21 development sites through the en bloc sale of older developments. Some noteworthy sales were Amber Park at $906 mil/ $1,516 psf/plot ratio, Normanton Park at $830 mil/ $969 psf/plot ratio and Royalville at $478 mil/ $1,960 psf/plot ratio.

In all, developers bought 11 residential sites through the government land sales programme totalling $5.87 billion and 42 sites through private supply amounting to $9.24 billion. These sites are expected to yield around 20,000 new homes in three to six years’ time.

Steady growth ahead

With the Singapore economy expecting to grow at 1.5% to 3.5% and a stronger job market in 2018, the residential market is likely to see steady growth.

Armed with a stronger landbank than a year ago, developers looked set to launch 10,000–12,000 new homes in 2018. Taking into account some pent up demand and the return of foreign investors, new sales volume in 2018 could reach 12,000–13,000 units. In addition, fresh demand will be generated by some of the 13,000 households affected by en bloc sales. They
are more likely to look for resale homes as they will need a replacement home immediately.

The response to the launch of New Futura in January shows that the luxury segment could set the pace for prices to rise by 4% to 6% through the year. Other new high-end launches to come include 8 At Saint Thomas, Marina One Residences (Tower 2) and South Beach.


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