Residential Market Persevered

Residential Market Watch Q2 2020

Homebuyers remain engaged

Defying the odds that the two-month circuit breaker from 7 April to 1 June might cause the residential market to stall in Q2 2020, a very encouraging result of 2,664 transactions and a 0.3% q-o-q rise in prices surprised the market. This could be attributed to genuine purchases by homebuyers with strong financial health. It also shows that the cooling measures put in place by the government in the past years had helped to ensure financial prudence among buyers as well as a sustainable rate of price growth.

At the beginning of the lockdown when the entire nation adhered to the “stay home” order in a bid to stop the spread of the coronavirus, property developers and marketing agents harnessed technology by using virtual viewing and tele-commuting to engage with prospective buyers. A dismal volume of 277 new homes were reportedly sold in April, most of which were from the viewings before the lockdown began. However, by May, when developers initiated “star buys” for selected units in new projects and with the re-start of viewing activities in late-June, new home sales rose to over 400 units in May and nearly hit 1,000 units in June.

The improving sales volume provided a stable footing to home prices which led to a marginal 0.3% rise in Q2 2020. This reversed the decline of 1.0% seen in Q1 2020 and resulted in a net contraction of 0.7% in H1 2020. Non-landed home prices inched up by 0.4% over Q1 2020 while landed home prices remained unchanged.

By locations, prices of non-landed homes in the prime Core Central Region (CCR) led with a 2.7% q-o-q increase, while those in the suburbs Outside Central Region (OCR) lifted by 0.1%. A price weakness of -1.7% showed at the city fringe Rest of Central Region (RCR).

Market dynamics

Due to the closure of all sales gallery from 7 April to 19 June, the launch of several new projects during this period was postponed. The only two projects launched were 15 Holland Hill and Parkwood Residences. Most of the marketing efforts were focused on existing projects that were on sale and targeted at prospects who had visited the sales gallery before the lockdown happened.

A total of 1,852 new homes were launched for sale in Q2 2020, 12% lower than the 2,093 units launched in Q1 2020. The 1,713 units sold was 20% lower than the 2,149 units sold in Q1 2020, bringing the total new sales in H1 2020 to 3,862 units. For the units sold in Q2 2020, 210 units (12%) were located in CCR, 670 (39%) in RCR and 833 (49%) in OCR. The three projects that sold the most units were Treasure At Tampines, The Florence Residences and Parc Clematis.

Based on caveat data, 69% of the new sales in Q2 2020 fell within the price band of $500,000-$1.5 mil, compared to 66% in Q1 2020. The next band of $1.5 mil-$2.0 mil accounted for 20% of the transactions, followed by 8% in the $2.0 mil-$3.0 mil range. Historically, between 65% to 72% of the new sales fall within this price band because it is within the reach of first-time
home buyers, HDB upgraders and investors. At this price, the units are usually compact units of 60-100 sqm in size.

In the secondary market, only 933 resale deals were closed, 55% lower than the 2,080 resale homes sold in Q1 2020. Of this number, 211 (23%) were in CCR, 249 (24%) were in RCR and 493 units (53%) were in the OCR. The inability to view could be one of the reasons for the lower number of resale deals. Due to the effects of ageing and wear-and-tear, most buyers would prefer to view resale properties before they commit.

Q2 2020 saw five bungalow deals in the Good Class Bungalow (GCB) Areas, one Sentosa Cove bungalow and 29 apartments sold in the luxury segment. In comparison, there were nine deals in the GCB Areas, four Sentosa Cove bungalows and 57 luxury apartments sold in Q1 2020. Except for GCB sales, the slowdown in sales activity at Sentosa Cove and luxury apartments could be attributed to the fall in foreign investors due to the travel ban during the lockdown.

URA statistics showed that of the 29 luxury apartments sold in Q2 2020, eight buyers were Singapore permanent residents (SPRs) and 10 were foreign buyers (NPRs). Compared with Q1 2020, there were 21 SPRs and 19
NPRs were among the 57 buyers. A year ago in Q2 2019, there were 106 luxury transactions of which 18 and 60 were bought by SPRs and NPRs respectively.

The top five nationalities who bought luxury apartments in H1 2020 were Chinese, Indonesians, North Americans, Australians and Taiwanese.

Rental market & vacancy

The rental market was also hurt by the pandemic. When the circuit breaker was imposed in April, several employers were frantically looking for short term housing for their foreign employees. While this gave a boost to leasing volume, rents were competitive because of the shorter lease terms. Some existing tenants opted for cheaper accommodation by moving to older properties or relocating from CCR to OCR. At the same time, the travel restrictions prevented new expatriates from coming to Singapore while those who were laid off had to terminate their leases.

The rental index fell by 1.2% q-o-q, reversing the 1.1% rise seen in the previous quarter. Within the non-landed segment, the RCR rental index suffered the biggest fall of 1.9% q-o-q, followed by a 0.9% fall in the OCR and a marginal 0.6% fall in the CCR index.

The vacancy rate remained unchanged from the previous quarter at 5.4% even as vacant units saw a marginal fall from 20,322 units to 20,162 by end-June.

Due to the stop-work order in Q2 2020, building activity came to a halt. Only 86 new homes were completed, a drastic drop from 1,528 completions in Q1 2020. Two small apartment projects were among the completions: Rezi 35 (44 units) and The Addition (26 units). Although construction works were gradually allowed to resume from June, delays in project completion could be longer than six months due to delays in the delivery of construction materials by manufacturers.

Supply in the pipeline

There was a total supply of 49,090 uncompleted homes with planning approvals at end-June, higher than the 48,868 units at end-March. Of the 49,090 units, 21,113 units (43%) have been sold. The balance of 27,977 unsold units comprised 19,064 units (68%) from projects that were either launched or not launched yet and 8,913 units (34%) from projects that did not have the prerequisites for sale.

Some of the new projects which obtained approvals for development in Q2 2020 were a 701-unit residential project at River Valley Road, 380-unit residential/service apartment project at Bernam Street and a 280-unit
condominium at Flora Drive.

As a result of the circuit breaker, no residential land parcels was sold in Q2 2020. Under the government land sales programme, two of the three land parcels that were supposed to be put up for sale in Q2 2020 will be tendered in October 2020. They are located at Yishun Avenue 9 and Tanah Merah Kechil Link. We expect the latter land parcel to attract more interest from
developers because it is located next to the Tanah Merah MRT station, the connecting station to Changi Airport. It is a relatively small site with around 265 residential units and 2,000 sqm of commercial space on the first storey. Bids are likely to range from $215 mil to $230 mil for the site.

The tender for the third parcel, a commercial-residential site at Jalan Anak Bukit, was postponed to March 2021 in view of the pandemic. Envisioned to be a “green urban village”, it will be a gateway to Bukit Timah’s nature attractions as well as an integrated mixed use transport hub. The Concept and Price Revenue Approach has been adopted to sell the site. Only the shortlisted proposals will proceed to the second stage of evaluation by price. Bids by developers are expected to come between $900 mil and $1 bn.

For the second half of 2020, the government decided to reduce the supply of private residential units on the Confirmed List to 1,370 units and will not release any new sites for commercial or hotel use in view of the economic contraction and uncertain business outlook. However, it has maintained sufficient additional supply in the Reserve List which developers can apply for should there be a shortfall in supply.

Bracing for H2 2020

The pick-up in sales activity in June was very encouraging. Potential buyers could have been motivated by the prospect of a stronger bargaining power as well as low interest rates. It is also a sign of the resilience of the residential market anchored by locals.

Developers are cranking up launch activities for the second half of the year to catch to upswing. The first two new projects to greet the market in July were Cairnhill 16 (39 units) and Forett @ Bukit Timah (633 units). Those that will follow include LIV @ MB (290 units), Penrose (566 units), The Landmark (396 units), Verdale (258 units) and more.

Based on the likelihood that developers could launch 4,000-5,000 units in H2 2020, some 3,500-4,000 new homes could be sold, including the sales from existing projects. This is similar to the sales volume in H1 2020 and would bring the whole year’s total to 7,400-7,800 units. Home prices are expected to weaken marginally as developers introduce more innovative pricing to
facilitate sales amid uncertain economic conditions.

Should the Covid-19 pandemic be under control towards the end of the year, the economy could open up, more jobs could be created and travel restrictions could be lifted. This would enable home sales volume to improve, thereby leading to the stabilising of prices.

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