Price Recovery Outpaced Volume

Residential Market Watch Q2 2018

New launches spurred prices and sales

The residential market did well in Q2 2018 with a 3.4% increase in the residential price index and a 35% jump in total sales volume compared to Q1 2018.

The stronger sales momentum in Q2 2018 were mainly  functions of more new project launches, pent up demand and liquidity. Compared to barely 1,000 new homes being offered to the market in each of the preceding three quarters, 2,437 new homes were launched in Q2 2018.

As market confidence picked up, some new projects were launched at new price points while prices of remaining units in ongoing projects were revised up.

For example, Phase 2 of Park Place Residences was priced 10% higher than Phase 1 a year ago. Caveat data showed that the prices of landed homes at Kismis Residences, Nim Collection and Watercove were 3% to 6% higher than in Q1 2018. Non-landed projects such as Parc Botannia, Seaside Residences, Queens Peak and Artra were priced 6% to 10% higher than in Q1 2018.   

As such, the price index of landed homes gained 4.1% q-o-q while the non-landed index rose by 3.2% q-o-q. By locality, the price index for non-landed homes in the Rest of Central Region (RCR) showed the biggest q-o-q rise of 5.6%. The price index for the Outside Central Region (OCR) and the Core Central Region (CCR) rose by 3.0% and 0.9% respectively. Overall, the price index has gained 9.1% from its trough in Q2 2017. 

Sweet spot of pricing

Right sizing and right pricing were key to the robust sales in Q2. Based on the caveats lodged, 65% of the new sales were priced below $1.5 mil each. Developers adopted sizing strategy to keep prices around the sweet spot of majority of homebuyers.

80% of the 170 units sold in The Verandah Residences at Pasir Panjang were below 1,100 sq. ft each and priced between $880,000 and $1.90 mil. For Twin View at West Coast Vale, 75% of the 450 units sold were below 1,100 sq. ft and priced between $643,000 and $1.57 mil. In the case of high-end projects, the 42 units sold at 120 Grange were below 680 sq. ft each and priced between $1.35 mil and $2.18 mil.

Developers sold a total of 2,366 new homes in Q2 2018, 50% more than the 1,581 units sold in Q1 2018. 54% (1,283 units) of the new homes sold were located in OCR, 39% (925 units) in RCR and 7% (158 units) in CCR. Total new sales in H1 2018 added up to 3,947 units, 35% lower than the volume in H1 2017. 

Likewise, 62% of the resale transactions were priced below $1.5 mil in Q2 2018, the threshold for the bulk of homebuyers.

A total of 4,700 homes were sold, double the new sales volume and 28% above the 3,666 sales in Q1 2018. 51% (2,388 units) of the resales are located in OCR, 30% (1,400 units) in RCR and 19% (912 units) in CCR.

Some of the resale homes were contributed by units in completed projects sold by developer/owner. The more prominent ones were 55 units of The Crest ($1,963 psf) at Prince Charles Crescent, 32 units of Avant Residences ($1,600 psf) at Aljunied Road and 29 units of New Futura ($3,660 psf) at Leonie Hill Road.

Q2 2018 saw 118 luxury apartments sold, of which only nine were new sales and the rest were resales. The new sales comprised three units of Wallich Residence ($3,740 psf) and six units of Marina One Residences ($2,700 psf). Including the 105 luxury apartments sold in Q1 2018, a total of 233 luxury apartments were sold in H1 2018, more than the 176 units transacted in H1 2017.

In the bungalow market, eight GCBs and four bungalows at Sentosa Cove were sold in Q2 2018, totaling up to 17 GCBs and six bungalows at Sentosa Cove in H1 2018. This compared with 22 GCBs and nine Sentosa Cove bungalows sold during the same period last year.

Profile of buyers

Caveat data for transactions across the island in H1 2018 show that permanent residents (PRs) bought 1,917 units and foreigners bought 708 units. Compared with H1 2017, PRs bought 1,892 units and foreigners bought 790 units. The proportion of purchases by PRs and foreigners have remained at 16%-17% and 6%-7% respectively for the past three years.

Rental market & vacancy

The rental index turned positive for the second consecutive quarter. It rose by 1.0% q-o-q in Q2 2018, following a 0.3% uptick in Q1 2018. With two consecutive quarters of positive growth after 17 quarters of decline, it seems that residential rents have bottomed out in Q4 2017.

The rental index for landed rents showed a strong rebound of 3.6% q-o-q while the index for non-landed homes edged up by 0.6% q-o-q. The increase in non-landed rents was milder because of the larger pool and stiffer competition. The rental index for CCR and OCR rose by 0.8% each and by 0.4% for the index of RCR.

The turnaround could be attributed to the combine effects of reducing numbers of new homes completions and displaced owners and tenants in developments that were sold en bloc in recent months looking for lodging. 1,327 new homes were completed in Q2 2018, down from 1,977 units in Q1 2018. This number is also much lower than the  quarterly average of 4,760 units between 2014 and 2017.

Incidentally, the number of vacant units was reduced by 3.1% q-o-q to 26,064 units, the lowest number since Q1 2016. Vacancy improved by 30 basis points to 7.1%.

Coco Palms (remaining 455 units), Trilive (222 units), Belgravia Villas (118 units) and Alana (74 units) are among the 1,327 homes completed in Q2 2018. 

Supply in the pipeline

URA statistics showed that there were 26,943 units from projects with planning approvals at end-June, up from 23,514 units at end-March. Of this number, 9,637 units (36%) were from projects that were either launched or not launched yet. Another 17,308 units (64%) were from projects without prerequisites for sale.

With developers’ active acquisition of development sites in Q2 2018, the supply pipeline is set to increase. 19 sites from private supply and four sites from the government land sales (GLS) programme were sold and could yield at least 5,300 new homes. 

Similar in acquisition pattern as Q1 2018, most of the sites acquired in Q2 were located in CCR: 13 from en bloc sales and two from GLS programme.  Two new record land prices were set in this round. Freehold Park House at Orchard Boulevard was sold to Shun Tak Holdings at $2,910 psf/plot ratio. This price trumped the previous record of $2,526 psf/plot ratio for a site at Draycott Park in 2013. The site adjacent to Park House, which fronts Cuscaden Road, was sold by the government as a 99-year leasehold development site. SC Global, FEC Properties and New World Development teamed up and submitted the winning bid of $2,377 psf/plot ratio. This is the highest price achieved for a residential government land sale.

These two sites looks set to be developed into luxury homes that can potentially be launched for sale in 15 to 18 months’ time.

A turn of events

Although the buying pattern and zeal reflected the degree of pent up demand and liquidity looking to be invested, the rising land costs that translated to higher launch prices are starting to put dampeners on the take up rate. A case in point could be the sale results at the launch of Affinity At Serangoon and The Garden Residences, both launched in early June. Affinity At Serangoon was launched at $1,590 psf and sold 104 units. The Garden Residences was launched in the same week at $1,660 psf and sold 64 units.

The example above basically sums up the mood in Q2: pent up demand and liquidity drove demand of new homes which led developers to launch their projects in quick succession. This increased frequency of launches of projects that are located in close proximity to each other, together with higher launch prices resulting from increasing land costs, caused demand lethargy to creep in.

Using a sledge hammer to kill a fly?

The government decided to act before home prices spiral up further. New cooling measures were announced on 5th July 2018 in the form of higher additional buyer’s stamp duty (ABSD), lower loan-to-value ratio and increased acquisition costs of land by developers. Frantic buying erupted during the four hours between the announcement of the measures and their coming into effect. Buyers thronged show flats as developers fast forward the project launches,  indicating the degree of pent-up demand, liquidity, and perhaps also demonstrated buyers’ mentality of “buy now before these measures price me out”. Such behaviour demonstrates the euphoria in the market and justified the intentions behind the measures: curbing demand on the back drop of rising interests rates and liquidity.

We expect a knee-jerk reaction as buyers and sellers adopt a wait-and-see attitude to assess and digest the impact of the measures. A sharp fall in volume in the second half of 2018 is to be expected. If history repeats itself, previous ABSD announcements have demonstrated that the drop in volume acted as weights to restrain price levels and delay the rate of increase of prices over a longer trajectory.

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