The EdgeProp-Knight Frank Homebuyers’ Sentiment Survey sheds light on how people feel about the local residential market
At least one in two people plan to buy a home, and more are looking to buy this year than in the past. Of the 611 respondents to the EdgeProp-Knight Frank Homebuyers’ Sentiment Survey, 55.6% said they were looking to purchase a residential property in Singapore in the next 12 months.
The survey was jointly conducted by EdgeProp and Knight Frank Singapore in 4Q2017. In the previous survey conducted in 2016, 51.2% of the 500 respondents said they were on the lookout for a residential property in Singapore (see Chart 1).
A key reason for the increase in homebuying interest is record land bid prices in government land sales (GLS) and collective sales, which have “created an expectation of higher prices within the next year or so, prompting buyers to take positions as soon as they can before the new price level can actualise”, says Alice Tan, director and head of consultancy and research at Knight Frank Singapore.
According to figures released by URA on Jan 2, prices of private residential property rose 0.7% in 4Q2017, following a similar increase in 3Q2017. “For the whole of 2017, prices have increased by 1%, compared with the 3.1% decline in 2016,” says URA. Given that prices are beginning to rebound, it is likely that more people would be prompted to buy before prices rise further.
Another reason is “the release of pent-up demand from prospective homebuyers over the past four years, built up since the seventh round of cooling measures and the total debt servicing ratio [TDSR] ruling implemented in 2013”, according to Tan. An indication of pent-up demand would be the transaction volume for private residential properties in Singapore, which plummeted sharply between 2012 and 2014 but has since been on an uptrend (see Chart 2).
A good proportion of those looking to buy in the next 12 months are already property owners. At least 58.5% indicated that they already owned one, while 15.9% said they owned multiple properties. Most of those looking to buy said the property would be for their own use or renting out, with a smaller proportion of respondents indicating other reasons such as for their children, as a future retirement home or for capital gains. Potential homebuyers who do not currently own a property are more likely to be owner-occupiers, while those who already own properties are likely to be rental investors (see Chart 3).
Preference for condos in prime districts
Perhaps owing to the high proportion of investors among the respondents, the results indicated a preference for private condominiums and apartments, with 65.6% of the respondents selecting that as their preferred property type. This is followed by HDB flats at 15% and executive condos at 9.1%, with the remainder split between landed houses, strata-landed properties and shophouses. HDB flats and ECs are subject to a five-year Minimum Occupation Period and rules for resale and rental, which make them less favoured as investment properties.
Tan says most respondents preferred the prime districts when buying a condo, regardless of where they currently reside. She notes that the propensity to move to the prime districts is highest for residents who currently live in the suburbs, with only 13.8% preferring to stay put and 56.3% preferring to buy a property in the prime districts.
Meanwhile, 54.9% of those who have homes in the city fringe would also like to move to the prime districts and 40.8% said they wanted to remain in the city fringe. An overwhelming 76.9% of respondents with homes in the prime districts indicated a preference to continue to stay there.
Among the respondents, 51.9% and 47.5% showed a strong preference for two- and three-bedroom units respectively. On the other hand, one-, four- and five-bedroom units are favoured by 21.9%, 20.9% and 9.8% of respondents respectively. Fifty-nine per cent of those who favoured one-bedroom units also chose the prime districts as their preferred location. Meanwhile, those who preferred two-, three- and four-bedroom units showed a preference for the city fringe, with 68.5%, 65.5% and 53.9% saying they would buy property in this location, respectively. Of the respondents who said they would like to buy a five-bedroom unit, 56.7% chose the suburbs as their preferred location (see Chart 4).
This trend of buyers’ preference for smaller units in and larger units away from the prime districts could be due to concerns about affordability. Properties in the prime districts tend to be the priciest, followed by those in the city fringe and the suburbs. Based on URA caveat data as at Jan 2, average transacted prices in 2017 for private non-landed residential properties are $2.7 million ($1,956 psf) in the Core Central Region (CCR); $1.7 million ($1,463 psf) in the Rest of Central Region (RCR); and $1.2 million ($1,158 psf) in the Outside Central Region (OCR), which are also referred to as the prime districts, city fringe and suburbs, respectively.
Prices of non-landed private residential properties in CCR rose 1.6% in 4Q2017, while prices in RCR and OCR rose 0.2% and 0.6%, respectively. According to Tan, prices in CCR fell by 10.8% between 2013 to the trough in 2Q2017.
Tan: Record land bid prices have created an expectation of higher prices, prompting buyers to take positions as soon as they can
“With prices for some private homes in CCR hitting attractively low levels in 2017, demand for value-for-money buys naturally increased, along with rising optimism, following the collective sales boom that began in May 2017,” says Tan. In 3Q2017, the transaction volume in CCR rose 85.1% y-o-y, reflecting the return of interest, she adds.
Sweet spot for prices
Most respondents preferred to buy properties priced from $800,000 to $1 million, followed by those in the $1 million-to-$1.2 million price bracket. In the previous survey, the most popular price bracket was $1 million to $1.5 million, chosen by 41.9% of respondents; 28.1% chose the $500,000-to-$1 million price bracket (see Charts 5 and 6).
According to Tan, the shift in preferred price quantum could be due to a larger proportion of respondents preferring a unit size of 701 to 900 sq ft, the approximate size for two-bedroom units, this year. More respondents preferred three-bedroom units in the previous survey.
In 2017, most of the transactions for private non-landed residential properties were in the $1 million-to-$1.5 million price bracket, according to URA caveat data as at Jan 2. The proportion of transactions in this price bracket also rose 2.3 percentage points from 2016. There appears to be a shift in homebuyer’s preference from 2016 to 2017, showing a propensity to purchase pricier properties, based on the proportion of transactions in each price bracket. This might be due to the type of units available for sale in the market and the prices set by sellers (see Chart 7).
ABSD biggest hurdle for buyers
Of the 611 respondents in the latest survey, 44.4% said they did not plan to buy a residential property in the next 12 months and the biggest hurdles holding them back were the additional buyer’s stamp duty (33.6%), preference for other types of investments (30.3%) and uncertain economic and job prospects (27.7%). A small proportion of 16.6% also felt that prices might decline further (see Chart 8).
Delving deeper into the macro factors that weigh on potential homebuyers’ minds, it appears that people are most worried about their job prospects and the global economy. At least 14.2% of respondents said they had “poor” and “very poor” confidence for their job prospects and 8.7% expressed low confidence in the global economy (see Chart 9).
This could point to a “mismatch in market confidence versus current price recovery and home price affordability in Singapore, as many Singaporeans do not think that their future job prospects and salary expectations match future housing prices in Singapore”, says Tan.
“This can also be inferred from the price expectations of non-landed private residential units, with an increasing proportion of respondents thinking that prices will increase more than 3% a year in the medium to long term.” (see Chart 10)
Their worries notwithstanding, people still felt confident about Singapore’s political leadership, economy and the residential property market, with 58.4%, 51.4% and 52.3% of respondents indicating a “good” and “excellent” confidence for these factors, respectively.
Homebuyers’ sentiment might improve further
On Dec 13, the Ministry of National Development warned of “a large potential supply of around 20,000 units from awarded en-bloc sale and GLS sites that have not yet been granted planning approval, on top of the around 18,000 unsold units that already have planning approval. Moreover, more than 30,000 existing private housing units remain vacant”.
Despite the high vacancy rate, an increasing proportion of survey respondents think that rents will increase, and at a faster pace of growth, in the longer term (see Chart 11).
In his 2018 New Year message, Prime Minister Lee Hsien Loong said: “Last year, our economy grew 3.5%, more than double our initial forecast. Incomes have gone up across the board, especially for low and middle earners.”
Figures released by the Ministry of Trade and Industry on Jan 2 show that Singapore’s GDP grew 3.1% y-o-y in 4Q2017 and the full-year growth, estimated at 3.5%, is higher than the 2% growth in 2016.
“Despite stronger economic performance in 2017 versus 2016, consumer sentiment remains fairly cautious amid rising inflation,” says Tan. She notes that prospects in the job market have remained tepid, with limited growth in overall employment, and income growth could be uneven across various occupations and income groups. “Nonetheless, the prospect of better conditions this year may fuel interest for residential property,” she adds.
Another factor that could lead to more homebuyers entering the market would be the spate of successful collective sales. Those whose homes have been sold through such sales will require replacement accommodation, says Tan Tee Khoon, executive director and head of residential project marketing at Knight Frank Singapore. “Those not affected by collective sales may also be spurred to consider purchasing soon, as they foresee prices going up.”
Tee Khoon: Those not affected by collective sales may also be spurred to consider purchasing soon, as they foresee prices going up
Vista Park was put up for sale by tender on Nov 17, with an asking price of $350 million. On Dec 14, Oxley Holdings announced its acquisition of Vista Park for $418 million ($1,096 psf per plot ratio). This follows its purchase of Apartment 8, a freehold property on Meyappa Chettiar Road in Potong Pasir, for $21.53 million. Oxley, which has been an active buyer of collective sale sites, has nine residential projects with more than 4,000 units in the pipeline for launch.
“[More people would] expect price increases across the board, including for HDB flats in sought-after locations, when they read news of aggressive land bids from the recent collective sale and government land sale sites,” says Tee Khoon.