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ASSET PRICES SOFTEN UNDER WEIGHT OF POLICY MEASURES
Singapore Property Market News and Analysis


Latest Property Real Estate News - Published on 24/01/2014

Private property prices fell for the first time

URA’s private residential property index fell 0.9% Q-o-Q in 4Q13, marking the first drop since 1Q12 and bringing 2013 price gains to 1.1%. CCR prices extended declines, while RCR recovered in 4Q, and OCR saw its first contraction since 2Q09. Landed property prices saw no changes. Clearly the TDSR policy, coupled with earlier measures, has begun to bite.

Mass market segment—a key driver for the private housing sector during the liquidity-driven recovery, have shown signs of losing momentum; Outside Central Region (“OCR”) home prices fell 1.0% Q-o-Q in 4Q13, for the first time since 2Q09, whereas prices in the Core Central Region (“CCR”) followed suit with a 2.1% decline. Only homes in the Rest of Central Region (RCR) bucked the trend, rising 0.4%.

“The continued decline in CCR prices is not surprising, given the impact of the TDSR and Additional Buyers' Stamp Duty (ABSD) on prospective buyers. In the OCR, buyers are also resisting prices which have hit an all-time high. Prices in the RCR, on the other hand, have become more "realistic" after developers and owners lowered asking prices last year. RCR properties are now gaining popularity due to its location near to the central region, but at a relatively affordable quantum compared to CCR properties,” said Mr Mohamed Ismail, CEO of PropNex Realty.

For the entire 2013, homebuyers continued to be drawn to more affordable mass-market homes in the OCR, as prices grew by 6.5% while CCR and RCR property prices slipped 1.9% and 0.1% respectively. Overall, 2013 private property prices increased by 1.1%, significantly lesser than the 2.8% registered in 2012.

Secondary prices taking cue from primary market

“I believe that secondary resale prices are taking cue from the primary market whereby many developers have slashed their launch prices in a bid to attract buyers. In addition to the weak market sentiments, the large oncoming supply and various measures in place have worked to further dampen demand,” explained Mr Ismail.

However, Mr Ismail is of the opinion that many investors are also waiting for a good deal before committing to a purchase decision. But projects of perceived value, such as those in good locations, are in an area of limited supply and/or are offered at lower prices than other units in the vicinity – should continue to shore up demand.

The combination of all curbs, consisting of TDSR, ABSD, tighter LTVs and higher cash down-payments, are amongst the most onerous seen in Singapore’s property market thus far, and would likely crimp residential buyer demand significantly. While reasonably-priced homes with desirable product and location attributes will continue to find favour with homebuyers, the private residential market looks to be heading towards a more muted growth trajectory, with weak demand due to various factors.

Additionally, the potential homebuyer base is expected to shrink further with curtailed demand from upgraders from the HDB market. The purchasing power of these upgraders will be affected by the softening resale prices of HDB resale flats – due to a mix of abundant incoming supply, cooling measures and new public housing regulations which include a tighter Mortgage Servicing Ratio (MSR) on HDB housing loans. According to HDB 4Q 2013 results, the Resale Price Index declined by 1.5% Q-on-Q.

On the supply front, the plethora of choices available - from the record launch of new homes in the past two years to the sizeable residential supply that is expected to materialise in the next few years up to 2016 – will see homebuyers adopting a deliberate and selective approach towards home buying.

“Moving forward, mass-market and mid-tier homes will continue to be favoured over the high-end, luxury segment, as such; the mass market segment will remain resilient—well-supported by genuine upgraders. For 2014, private property prices could experience a marginal correction of up to 2%, largely contributed by the weaker CCR. On the flipside, OCR prices will remain resilient with positive growth of up to 3%. RCR might also be a bright spot as they benefit from their location close to the city and lower prices than CCR offerings. This will appeal to many investors who are looking for value-for-money buys near to the CCR,” concluded Mr Mohamed Ismail.

HDB resale prices fell to the lowest in 2013

HDB resale prices fell by 1.5% in Q4 2013, marking the biggest decline since 2005 and the second consecutive quarterly drop amid cooling sentiments. Though the index only dipped to 0.6%, this sets the stage for HDB resale prices to take the downward trend as Mr Mohamed Ismail, CEO of PropNex Realty, expects HDB resale prices to drop by between 5 to 8% in 2014.

“Overall, HDB resale price growth for the entire 2013 a negative 0.6%. Moving into 2014, the HDB resale market can expect further negative price growth possibly at the range of negative 5 - 8%. This price trend is due to the release of new BTO flats and PRs having to fulfil 3 year requirement before they can purchase a resale flat.

The HDB resale market is effectively serving only upgraders and limited permanent residents now, resulting in the weakening of prices and volume of transactions. Transaction volume had dropped 28% comparing Y-o-Y, 18,100 transactions recorded in 2013 is the lowest number of resale flats sold in the last 2 decades. Comparing against 2009, transaction volume dropped by more than 50%, and this is expected given the line-up of measures announced this year such as the TDSR, reduction of the MSR and the reduction of the maximum loan tenure, which have all impacted a buyers’ purchasing power. The reduction of the mortgage servicing ratio (MSR) to 30% of a borrower’s gross monthly income has taken its full effect on resale prices – which saw the lowest increase since 2009, as affordability was hit,” commented Mr Ismail.

It comes as no surprise that 2014 is set to be a quiet year for the property market in light of the numerous property-buying restrictions. One such restriction is the tighter rules on PRs buying flats. Since August 2013, new PR households must wait 3 years before they can get a resale flat as opposed to no waiting time prior to the enforcement of the rule (PRs constitute a substantial number of HDB flat buyers. The drop in demand from PRs will reduce the overall demand for resale flats in 2014.

With the ramped-up supply of BTO flats in the past 3 years, a large proportion of first-time buyers have found it easier to get new flats. Hence, fewer first-timers will be looking at the resale market, causing this segment to languish in low activity.

COVs at the most anemic level in years

"We are expecting COVs to continue to moderate, especially during the festive period. However, flats in mature estates and/or with good locality attributes will still be fetching reasonable premiums,” said Mr Mohd Ismail, CEO of PropNex Realty.

Median COV      3-rm           4-rm          5-rm       Executive    Overall                                                                    
1Q13                $28,000    $32,750    $36,000    $55,000    $32,000
2Q13                $20,000    $28,000    $30,000    $45,000    $26,000
3Q13                $15,000    $17,000    $20,000    $30,000    $17,000
4Q13                  $7,000      $7,000      $5,000     $20,000      $7,000

% drop

(since 1Q13)     - 75%          -78.6%     -86%        -63.6%     -78.1%

Source: PropNex research, SRX
Data generated as at 23 January 2014

Now that the HDB market outlook is less upbeat, we foresee that more deals are likely to be done at valuation, or even at negative COV. Median COV has plummeted by between 63 to 86% across all categories of HDB properties.

“In view of the current trends, HDB resale flat prices will most likely head south. Prices, however, will not plunge as there is a large base of potential buyers,” said Mr Mohamed Ismail, CEO of PropNex Realty. He expects 2014 to witness an approximate 20,000 HDB resale transactions as price correction sets in with resale flat prices to drop by around 5 to 8%.

END

For media enquiries, please contact:

Carolyn Goh
Corporate Communications and Marketing Manager
P & N Holdings Pte Ltd (holding company of PropNex Realty)
480 Lorong 6 Toa Payoh #10-01 HDB Hub East Wing Singapore 310480
DID : (65) 6829 6968 / 98287834 | Main : (65) 6820 8000 | Fax : (65) 6829 6600
www.PropNex.com



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