Real-estate opportunities in a challenging environment

By Michael Lim
/ The Edge Property |
Join our  Telegram  channel and follow our  Facebook  for the latest update.
Rocked by global market uncertainties, Singapore’s economy is expected to remain subdued for the rest of 2016, with the possibility of it going into a recession within the next 12 months, according to Song Seng Wun, director and economist at CIMB Private Banking. Song was speaking at The Edge Property 360 seminar on “Pockets of Opportunity in 2017” on Oct 22 at the HDB Hub Auditorium.
The Monetary Authority of Singapore has said that the government’s forecast is for growth to come in at the lower end of the 1%-to-2% range for 2016, and “only slightly higher” for 2017. However, inflation is expected to stay low.
From left: Bernard Tong (moderator) and panellists Feily Sofian, Alan Cheong and Song Seng Wun
Around the world, this has been the longest period of subdued growth and low inflation, according to Song. “That is why central banks are having a challenging time deciding when to raise interest rates,” he says.
To him, what is also worrying about the Singapore economy is the 10 consecutive months of year-on-year credit contraction, as this will have an impact on economic growth.
Despite a slower pace of growth and a tougher job environment, some people still think it is a good time to enter the Singapore property market. “It’s really about whether you have confidence in your income and your capacity to generate returns,” says Song.
While the residential market is still wrestling with a supply overhang of 21,500 units as at 3Q2016, there are still purchasers. Song attributes it to selective buying. “If they see a product that they like, and they are comfortable with the price, they will buy,” he says. “People are still upgrading selectively, and so there are still transactions, reflecting slower but stable growth.”
It is precisely because there is still buying activity in the market that the government is not in a hurry to tweak or roll back the property cooling measures, says Song. “It’s only if we have a recession, then maybe the government will [reconsider] some of the measures. The level of household debt has not come off that much yet. They don’t want people to start leveraging again, especially when the economy could slow further, and that could unravel all the good they have done with the measures.”
Based on the URA private property price index, overall prices have corrected by almost 11% from the peak in 2Q2013. Alice Tan, Knight Frank head of research and consultancy, expects some of the measures to be tweaked if the price correction hits the 15% threshold next year. “For now, it looks like a controlled landing,” she says.
The audience listening to a presentation by Knight Frank’s Tan
The bright spot is landed homes
Activity in the landed home segment has picked up in the past nine months, notes Knight Frank’s Tan. High-net-worth individuals are seeing the long-term value of landed homes, given their scarcity. There are only 70,000 landed homes in the whole of Singapore, compared with more than 200,000 private condominium units and apartments.
Tan: Prices of landed homes are the first to fall in a ​downturn
“Prices of landed homes are the first to fall in a downturn, and also the first to recover, compared with non-landed homes,” says Tan. Today, the average price of landed homes across Singapore is between $1,200 and $1,300 psf, which is comparable to the prices of some of the 99-year leasehold condos that were launched recently. At the peak of the market, the average price of landed homes was in the range of $1,300 to $1,400 psf.
The neighbourhood with the highest level of transaction activity in landed homes is the Serangoon Gardens/Kovan area in District 19. This is partly because it has one of the highest landed housing stocks — more than 10,000 units. The next most popular neighbourhood is the Katong/East Coast area.
Buyers zoom in on prime and city-fringe condos
High-end condos in the prime districts in the Core Central Region (CCR) have also seen an increase in activity from both local and foreign investors. This is because many are drawn to projects in which developers offered creative deferred payment and stay-then-pay schemes recently. Many of the developers have to meet the conditions of the Qualifying Certificate, which requires them to sell all the units in a project within two years of completion. These projects include Ardmore Three, OUE Twin Peaks and Skyline Residences.
These transactions have contributed to a rebound in the average price of homes sold in the CCR, from $1,946 psf in 2H2015 to $2,281 psf in 1H2016, says Knight Frank’s Tan. The launch of Cairnhill Nine also contributed to increased activity in the CCR in 2Q2016. She adds that buyers are also drawn to the city fringe, or Rest of Central Region (RCR).
Prices in the RCR are currently hovering in the $1,400-to-$1,500 psf range. The projects are generally located just a short MRT ride or short drive to the CBD. “City-fringe homes will continue to be a big draw because of two key attributes: proximity to the city centre and prices that are lower than those of prime condos,” says Tan.
Unsold stock puts pressure on rents
Another key indicator that buyers should take note of is the unsold inventory, which, according to URA, was at a historic low of 21,500 units in 3Q2016. This is in part attributed to the drop in the number of residential development sites offered in the Government Land Sales programme since 2H2015. “This is a way for the government to control the supply of new homes in the event of a glut in unsold units,” says Tan.
Inventory in the CCR has fallen the most sig nificantly, by about 55%, from 12,855 units in 2012 to 5,793 units in 2Q2016. In the RCR, the number of unsold units has fallen 15%, from 9,046 units to 7,603 units over the same period. Meanwhile, the Outside Central Region (OCR) saw the second-largest decline in unsold inventory — a 43% contraction, from 17,507 units to 9,886 units — over the same time frame.
However, the supply in the OCR and RCR could spike again with over 9,000 homes being completed in 2H2016 and another 40,000 for the whole of 2017. This could put further downward pressure on rents as the economy continues to slow, even as the supply of new homes rises, warns Tan.
According to Feily Sofian, head of research at The Edge Property, the residential vacancy rate is over 10%, the highest since 2005. However, leasing activity has picked up, partly due to lower rents, which have resulted in some locals selling their homes to rent instead, while waiting before committing to a purchase. Some expatriates who have moved to the suburbs or city fringe have relocated to the CCR owing to the lower rents.
Besides location, timing is also very important when it comes to buying a property. According to Sofian, out of 1,026 residential units that were purchased at the trough of the market in 2009 and resold at the peak in 2013, 99.6% registered gains of at least $500,000.
Auction market gains traction
The best place to hunt for deals could well be the auction market. The number of private condo units being put up for auction has risen from 45 in 1H2013 to 122 in 1H2016. Similarly, the number of landed homes put up for auction has risen from 40 in 1H2013 to over 60 in 1H2016, according to figures from Knight Frank Research.
Take, for example, a unit at Turquoise that was first put up for sale by the owner for $5.8 million ($2,778 psf) in 2011. Three years later, the owner lowered his asking price to $4.8 million ($2,299 psf) and still there were no takers. The property was eventually seized by the bank and sold in a mortgagee sale for $2.8 million ($1,397 psf), a 50% discount, says Sofian.
Another segment that has seen a rise in the number of units put up for auction and mortgagee sales is strata industrial. This is partly because many investors switched from residential to strata industrial during the 2011-to-2013 period, owing to the additional buyer’s stamp duty (ABSD) imposed on residential property purchases. This was prior to the introduction of the seller’s stamp duty (SSD) for strata industrial property in January 2013. The absolute prices for these strata industrial units were also attractive to many investors, who were new to investing in such properties, observes Alan Cheong, head of research at Savills Singapore.
However, some of these investors could now be facing challenges in securing tenants or servicing their loans. For instance, a 1,894 sq ft unit on the ninth floor of Oxley BizHub was put up for mortgagee sale twice: the first time in August, when the opening price was $830,000, and the second in September, when it was sold for $792,000 ($418 psf), according to Knight Frank.
Similarly, a 7,858 sq ft unit on level 1 of Ubi Techpark was put up for mortgagee sale three times — initially for $3.3 million in November 2015 — before it was sold for $2.59 million ($330 psf) in September, reflecting a 27% price drop in less than a year, says Knight Frank.
According to Savills’ Cheong, strata-titled Business 1 industrial space zoned for food processing is something that has been overlooked. “It’s a niche segment that investors can seriously consider.”
From left: Sofian, Tong, chairman and MD of Hong How Group Daniel Teo, Cheong and The Edge Property deputy editor Michael Lim
Strata commercial investors feel the pinch
When the ABSD was first introduced, some investors had also switched to buying strata commercial units. The buying frenzy, however, has cooled off since the imposition of the total debt servicing ratio (TDSR) framework, which put a cap on borrowing for all property segments.
The number of strata office transactions plummeted from 734 units worth $2 billion in 2013 to 227 units worth $758 million in 2015, according to Knight Frank. Strata retail transactions dropped from 1,186 units totalling $2.3 billion to 221 units worth $393 million over the same period.
“Buyers who paid high psf prices for strata offices and strata retail units a few years ago are feeling the pinch, especially amid softening rents and a slower take-up rate among tenants,” says Knight Frank’s Tan. She expects more strata commercial units — both office and retail — to be put up for auction over the next six to 12 months as the owners of these units face difficulty finding tenants and servicing their loans.
When it comes to buying opportunities, Savills’ Cheong says he will look at shoebox apartments, particularly in the city-fringe neighbourhood of Geylang, which is close to both the Paya Lebar Central commercial hub and the CBD. “Capital values have fallen about 24%, while yields are still in the 3%-to-3.5% range,” he says. “Rents of shoebox units have fallen to a point where they are facing some resistance at $2,000 a month.”

Follow Us
Follow our channels to receive property news updates 24/7 round the clock.
EdgeProp Telegram
EdgeProp Facebook
Subscribe to our newsletter

Our Site (previously known as The Edge Property Singapore) is the best property portal for real estate agents, investors, home-seekers and sellers alike in Singapore. On EdgeProp, you will be able to find the latest and hottest property news, property listings, and access tools for your research and analysis.

Whether you are looking to buy, sell or rent apartments, condominiums, executive condos, HDBs, landed houses, commercial properties or industrial properties, we bring you Singapore’s most comprehensive and up-to-date property news and thousands of listings to facilitate your property decisions. Click into any listing to check out the new AI Redesign tool to envision your property based on your preferred style, be it Scandinavian, Minimalist or many others.

View More