Resale residential properties gearing towards stable pricing and improving investors’ interest

Ong Kah Seng
Alex Sun
/ R'ST Research, The Edge Property
July 30, 2015 10:00 AM SGT
Recently it was thought that perhaps the long drawn sluggish resale performance of completed non-landed private properties is ending, as the prices seemed to stabilize and in fact saw marginal increase in these couple of months, especially in May and June 2015. It is indeed true that resale property prices might have fallen to more affordable levels for buyers. Prices now are generally already some 8% lower compared to a year ago, that is comparing June 2015’s resale property prices with that of June 2014.
We however cannot construe the stable monthly resale property prices in recent months, as sure signs of prices bottoming out - that is, such prices are set to stage notable monthly price recovery. The stable to marginal monthly price increases showed buyers were generally keen in getting a resale property, as prices seemed more affordable and attractive. However, opportunistic resale buyers will not accede to higher asking prices by sellers due to the Total Debt Servicing Ratio (TDSR), constraining large property loans. The recent months of resale property buying also follow the festive period in Dec 2014 to Feb 2015, where buyers were distracted in their property search. There was some pent-up interest after the Chinese New Year.
Also, leasing activity is usually higher in the first half of the year, due to influx of expatriates and foreign professionals in this period. These somehow lifted investors’ sentiments even for a buyer (who purchased the unit in second quarter of the year), when come the full completion of the resale property deal which will be in the second half of the year, leasing activity have more or less slow down. Some investors nevertheless feel good in purchasing a unit when leasing activity seems better during their point of purchase.
Very likely, resale condominium prices will therefore be fairly flattish in the second half of this year, reflecting limited price recovery but definitely strong signs of stabilizing.
Segmented performance across different regions
Prices of completed non-landed properties in Rest of Central Region (RCR) seem to still be able to hold the best, compared to Core Central Region (CCR) and Outside Central Region (OCR). This reflected investors’ resilient preference for city fringe, i.e. RCR homes. RCR homes are still considered most ‘investible’ (or within investors’ interest) as they are more affordably priced than high-end homes in CCR.
We must also note that most RCR developments are in niche localities and with average sizes or smallish developments with no more than 250 units each. Expatriates from western countries and those from advanced economies in Asia like such quiet living environment, compared to suburban condominium developments comprising some 300-800 units. Facilities might be too over-utilized during the weekend and some evenings, and the development might be too crowded.
There may be some monthly price increase for OCR properties recently, but generally, suburban condominiums are experiencing resale and leasing headwinds. Any recent marginal price increase of suburban condominiums does not point to potential of confirm monthly price increases going ahead. The suburban condominium market is still challenged by substantial new completions intensifying leasing and resale competition, with TDSR continually constraining the loan quantum of the ordinary wealthy buyer.
Although suburban condominiums have been a familiar private residential property type to all, it must also be noted that this is a fairly new investment product. Suburban condominiums were traditionally bought mainly for owner occupation by HDB upgraders, as there were limited leasing interests from expatriates.
New completions in the OCR tend to be smaller in unit sizes than older properties, and have higher $ psf of selling price. More shoebox units are also recently completed and completing in OCR. As more suburban condominiums are completed and more smaller-sized units are disposed when buyers find it hard to get tenants especially in far flung locations, then the bulk of completed suburban condominiums that are resold in recent times may comprise of smaller format units which have higher $ psf price. This therefore results in seemingly resilient, or even improved average prices of OCR completed properties in recent times.
CCR completed properties’ prices will continue to be on a downward trend as buyers’ interest for high-end properties remains weak. Weak investor interest persists due to companies continually cut back on expatriates’ housing allowances. There may be some recent revival in high-end residential property buying, but cases are very ad-hoc, only several random high-key purchases to spice up activity in high-end residential property investments. This was unlike 2007 when there was consensus penchant by wealthy buyers for Singapore’s high-end properties. The buyers of high-end properties now are more opportunistic, mainly savvy, cost-sensitive hunters who will not pick a unit in Singapore at high prices; in fact maybe a high-end property at a depressed price is more preferred.
Continual soft landing but more stability in second half of 2015
Resale prices of non-landed private homes are expected to be fairly flattish in the second half of 2015. Buyers generally are opportunistic now, preferring to grab a property whose price they can slash substantially from the owner. But they will also be skeptical about the investment potential if indeed the owner has to cut the property’s price to offload it.
Sales enquiries for completed properties in the second half of the year might stay reasonably high, but it will not translate to more sales and deals concluded at higher prices. More buyers are expected to be enquiring, viewing around, doing homework but they will also be whetting the appetite of sellers, especially owners whose property is experiencing difficulty in being rented out. Buyers tend to walk away when they feel the prices of completed properties do not match their expectations, or if the prices do not allow them to get sufficient loans under the TDSR rules.
New completions that rise to buyers’ standards will however appeal to buyers
There will be more concerns on the physical performance of newly completed condominiums, in the form of physical defects and how well they are promptly rectified by the developers during the defect liability period. Condominiums completing since 2013 generally have modern, extensive frills, comprehensive project designs - but this could mean more details have to be given in rectifying defects or inconsistencies upon project’s completion.
Buyers (both investors and owner-occupiers) of suburban condominiums are usually the-man-in-the-street, whose buying decision highly hinged on recent happenings, such as whether the new completions lived up to owners’ standards, and how the new property owners (i.e. their peers) managed to secure tenants. Intent investors of suburban condos will thus examine how their peers who bought similar products in the years of 2010-2013 during the condominium dream period, are coping – in terms of any difficulties in leasing out, and financing the property as actual financing kicks in after TOP. These cues will be highly picked up by HDB upgraders who are looking to buy a suburban condominium from a developer, or those looking to invest in a recently completed resale suburban property.
However, for fairly defects-free or new completed projects where defects are readily addressed to, this will foster confidence among resale buyers on getting a unit in such developments. For investors who hesitated on buying new completions due to the high price premium, they will consider getting an older property as owners are able to cut prices if needed - since they might have bought the unit at low prices. Newly completed projects which have minimal rectifications required and smooth repairs promptly given by developers will definitely up the satisfaction level among existing owners. These might also consequently encourage some investors to make a purchase of a completed unit, particularly as projects launched from 2010 and completed from 2013 offer very stylish, modern development concept and property designs.
This article appeared in The Edge Property Pullout of Issue 687 (July 27) of The Edge Singapore.
Ong Kah Seng is a director and Alex Sun is a senior analyst at R'ST Research. The views expressed here are their own.