The 3Q12 URA Residential Price Index showed an increase of 0.6% Q-on-Q (versus 0.4% in Q2) to reach 208.2 points, cumulating to a total rise of 0.9% this year to date. Once more, the most bullish action was seen in the mass-market segment (Outside Central Region (OCR)) where prices increased 1.0% (versus 0.5% in Q2). In addition, there was also a 0.1% and 0.8% price increase in the high-end (Core Central Region (CCR)) and mid-tier (Rest of Central Region (RCR)) segments, respectively.
“The rise in Q312 reflected a stabilisation of the market as prices were much flatter—rising only by a tame 0.9% for the first three quarters of 2012. Comparatively, the price index was increasing at a much sharper rate of 13.8% in 3Q 2010, and 5.5% in 3Q 2011”.
“Other than the favorable environment of strong economy and low unemployment rate in Singapore, we believe that home buying sentiment could have been boosted by the macro environment of rock bottom interest rates. In addition, several new launches with good locality attributes and attractive pricing could have further contributed to the performance in Q3. Developers have continued with project launches in Q3, stepping up momentum for mass market private homes in the OCR and RCR to capitalise on positive home-buying sentiments, as a result of the narrowing of price gap between new mass-market homes and completed higher-tier properties”, commented Mr Mohd Ismail, CEO of PropNex Realty.
A trend driven by demand for mass market properties in the OCR
“Mass market properties in the OCR outgrew all segments to register a 2.6% increase in 2012 so far (compared to 0.1% in the CCR, and 0.6% in the RCR), and is the main contributor to the price growth since 2011”.
“The resilience of this market could probably be attributed to the implementation of the Additional Buyer's Stamp Duties (ABSD) in December 2011. Since its implementation, a sharp reduction in foreign demand for private residential properties was observed, particularly for private homes in the CCR and to a lesser extent the RCR. This in turn, made properties in the suburban mass market segment more appealing to HDB upgraders who buy with a longer term perspective”.
“The mass market segment, which caters primarily to the local population, remained largely unaffected by the lingering cautious buyer sentiment due to two factors. Firstly, HDB prices have peaked and this encouraged more affluent first time homebuyers or HDB upgraders to consider moving into the mass market segment. Secondly, the sustained demand from HDB owners who have fulfilled their minimum MOP and have the added option to purchase a second property as part of their investment portfolio.”
“Following the introduction of several rounds of cooling measures, the reduction in affordability would impact investment-driven demand across all segments adversely. There could also be a demand shift towards more budget friendly mass-market homes in the OCR or even in the RCR, as some buyers may be forced out of the high-end market if they deem the increase in monthly payments excessive, or if they do not have enough cash on hand for the higher down payments should they insist on taking loans exceeding 30 years, or beyond the retirement age of 65 years”.
“However, we also believe that demand for high-end properties in the CCR might not be severely affected as buyers of such properties are able to hold-on to their home buys”, explained Mr Mohd Ismail.
Government to step in when market is deemed to be not sustainable
Given the government’s intention of keeping property prices stable and affordable, we believe further upsides in private residential prices will be limited. The presence of price resistance should help to moderate any price increases for the next quarter.
Recently, the Monetary Authority of Singapore (MAS) has capped all new residential property loans at 35 years wef 6 October 2012. For loans to individuals, if the tenure exceeds 30 years or if the loan period extends beyond the retirement age of 65, the loan-to-value (LTV) will be capped at 40% if the borrower already has one or more outstanding residential mortgage and 60% if he has none.
“A knee jerk reaction could surface as potential homebuyers may take some time to fully understand the implications of the latest measure (as explained above). However, we believe that the measure is unlikely to dent demand severely due to the presence of other home demand drivers such as low interest rates, easy loan access and healthy liquidity”, expounded Mr Mohd Ismail, CEO of PropNex Realty.
“Developers’ pricing strategy must continue to remain competitive, if they want to be successful in enticing potential homebuyers who are still waiting for a more suitable project before committing to a purchase. The marginal price growths registered so far this year and the recent quarters are evidence that developers may not be able to take on an aggressive pricing strategy compared to one to two years ago, which is a result of increasing price resistance from homebuyers”.
“On the whole, we expect residential property prices in Singapore to remain largely flat with marginal and gradual growth of between 1 to 2% for the entire 2012. The record supply in the pipeline could further help to alleviate any pent-up demand in the OCR, thereby preventing spikes in property prices. In the mid to long term, strengthening global economies would also boost investor sentiment, leading to a gradual recovery of CCR and RCR prices,” concluded Mr Mohamed Ismail.
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