Public home prices flat in first half of 2016
Though HDB resale prices rose marginally by 0.1 per cent in Q2 2016 - the index has shown marginal price movements up and down in the past 3 quarters, therefore it is obvious that prices in a consolidation phase.
Mr Ismail Gafoor, PropNex Realty CEO said, “with prices consolidating, we expect transactions to pick up. Resale buyers who have remained on the side-lines should have, by now, understood that prices will not fall very much more below this level. The prolonged price expectation mismatch between re-sellers and buyers that has occurred since the introduction of the total debt servicing ratio (TDSR) and other measures; has reached a stage whereby the stakeholders realised that this is the new ‘norm’. They have played a wait-and see strategy for some time now and with prices consolidating, they will be making their moves soon.”
Resale prices expected to be flat in 2016
In 2016, the government will maintain measures to stabilise the public housing market such as the Mortgage Servicing Ratio (MSR) cap of 30 per cent and the maximum loan term of 25 years for HDB mortgage loans, three-year wait for new PRs before they can buy resale HDB flats, and allowing singles to buy two-room BTO flats in non-mature estates.
In addition, HDB will increase the BTO supply (HDB will launch 18,000 new BTO flats in 2016, more than the 15,000 which were launched last year) – which will continue to put pressure on prices.
Mr Ismail predicts that 2016 may spring a surprise as the current price points will entice more buyers to enter the market as it is attractive enough for young couples and/or upgraders – which could also be partly attributed to the non-existence of COV across the board,” says Mr Ismail.
2016 will probably see a price movement of up to 1 per cent, with volume exceeding 20,000 units due to the lower asking prices.
Private home prices expected to register declines for rest of the year
URA’s Q2 2016 data shows that prices of private homes in Singapore fell 0.4 per cent quarter-on-quarter (QoQ), slightly lower than the 0.7 per cent decline in Q1 2016. With the property market continuing to operate in a tight financing and regulatory environment, Singapore’s property market remains within the down-cycle.
"It is obvious that private residential prices is also in a consolidation phase with prices still under some pressure," said Mr Ismail, “prices are expected to show modest declines or remain flat with price decreases of up to 2 per cent in 2016, led by OCR price decreases. This is the lowest in the last 3 years.”
Luxury properties in the CCR rose 0.2 per cent as affluent home buyers have greater holding power and are able to wait for a suitable offer before selling. Furthermore, CCR properties attract primarily high net worth buyers, who are less likely to be affected by rising interest rates and/or existing measures.
It is similar for Singaporean buyers of prime properties in the CCR; they are usually more affluent and are also less affected by measures such as TDSR and ABSD - as compared to average income Singaporeans. The current low interest rates may have also induced demand.
“CCR prices have been sliding for the past 2 years and it has perhaps reached a level whereby consumers are somewhat comfortable with. The two consecutive quarters of price increases signify the return of confidence in this region.”
“Today’s CCR prices are much lower compared to 2 or 3 years ago; and with developers slashing prices and/or offering discounts, CCR prices have narrowed the price gap between RCR properties – which attracted buyers to pick up units there.”
In contrast, buyers of properties in the mass-market OCR and to a certain extent, the RCR, are generally more price sensitive, targeting properties with prices ranging from S$1,000-S$1,500psf in the mass market segment, and S$1,500-$2,000psf in the mid-tier segment. Such buyers are usually bargain hunting, or looking for ‘value-buys’ – as such, the ability to take up loans is critical for their purchase decision – but many are hampered by the TDSR as Mr Ismail believes that more potential buyers are finding greater difficulty to invest in a private home with a price quantum beyond $1.3 million given the lending curbs - and the situation is compounded by the ABSD.
Most purchasers are home-stayers and a significant group of them fall into the HDB-upgrader category. However, recent price indices from HDB and URA have fallen in the last couple of years, which again have impacted their upgrading ambitions.
“The non-increment in prices of HDB resale properties have led to a smaller gain achieved from the sale – which will in turn, limit the budget for their new private property and may cause some to put their plans on hold because the potential profit is insufficient to allow them to upgrade”.
With the presence of resistance to price hikes, prices of OCR projects have remained competitive as there is an added pressure for developers to price their projects reasonably. In view of such a tight loan environment, OCR prices registered the biggest fall with a 0.7 per cent fall.
In addition, secondary market sellers also face stiff competition from developers who are continuing to launch projects at attractive prices and incentives. As such, buyers will have more options – they will only commit if they perceive the property to be a good value proposition. This may put a fair bit of pressure on sellers in the resale market, who may have to lower prices in order to make a sale.
Outlook for 2016
Notwithstanding the expected improvement in buying volume which is in line with more upcoming new launches in the pipeline, there seems to be little respite for the private residential property market at least in the short term. This is due to the continued enforcement of the property measures as well as interest rate increases and a large oncoming supply of homes. As such, Mr Ismail predicts that a buyer’s market is expected to persist until the end of the year.
“We expect prices to remain relatively stable with a bit of downward pressure in 2016. Developers will continue to adjust launch prices to match the current inertia in the market, but will not drop prices too much due to the high price in which they have secured the land. Similarly, resale prices will take cue from the primary market in a bid to attract buyers”, said Mr Ismail.
In view of these downside pressures, prices of private residential properties are projected to remain on a path of moderation. Furthermore, developers’ land bid strategies are expected to remain measured in the highly regulated residential property market, allowing them more flexibility in adjusting prices to encourage home purchases.