Tug of War - Ample Stock in Primary Market

Tepid sales and poor market sentiments are putting a strain on developers as unsold units continue to pile up. The primary market is currently deluged with an estimated of 16,050 unsold units from projects already launched, out of which only 15% are from completed projects. Including future launches from sites sold, the estimated supply is nearly 30,000 units.
Unsold Repository
The concern of oversupply that arised two years ago has now manifested itself fully in the property market. After rounds of cooling measures, the market is now caught in a tug-of-war. Either developers cut prices to move unsold units or buyers accept higher prices and corresponding lower rental yields.
Excluding projects that were granted Temporary Occupation Permit (TOP) before 2010, the number of unsold units from projects launched since 2007 is estimated to be 16,050 units. Including expected future launches from sites sold, the total supply in the primary market is actually closer to 30,000 units.
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About 75% of the unsold units currently available in the primary market come from projects launched after 2012, where the percentage of units sold declined drastically compared to prior years, presumably due to the various rounds of cooling measures (Figure 1).
number of launched and unsold non-landed units by launch year - EDGEPROP SINGAPORE
unsold units by TOP year - EDGEPROP SINGAPORE
About 15% of the total unsold units came from completed projects. Out of these unsold units, 63% are located in CCR, 32% in RCR and 5% in OCR (Figure 2).
unsold non-landed units from launched projects by planning region - EDGEPROP SINGAPORE
However, out of the total unsold units from uncompleted projects, as many as half are located in OCR. As these projects are completed, we expect OCR’s percentage of unsold units from completed projects to increase.
Overall, 56% of the total unsold units are located in the Central Region (CCR & RCR), and the remaining 44% are located in OCR.
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Completed but Unsold
Looking at unsold units from projects completed since 2010, Sentosa ranks as the top Planning Area with the highest percentage of unsold units due to the dwindling interest for non-landed properties there. An estimated 66% of the completed units in Sentosa remain unsold, more than twice that of Newton at 28%.
Among the reasons why unsold units in Sentosa are high, one reason could be the fact that developers are exempted from the Qualifying Certificate (QC) requirements under the Residential Property Act and they are also not hit by the Additional Buyer’s Stamp Duty (ABSD) since sites in Sentosa were sold before the implementation of ABSD. Therefore, developers there may not be in a hurry to offload their remaining units. Some developers have chosen to rent out their unsold units to offset their holding cost instead of selling them at lower prices.
completed unsold units in CCR (launched since 2007) by planning area - EDGEPROP SINGAPORE
Developers’ woes
Corresponding to poor market sentiments, transactions in the non-landed residential primary market plunged by 63.4% yoy and 53.5% qoq with only 1,363 units moved in 1Q14, the lowest since 4Q08.
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The situation is likely to remain in a doldrums for the rest of 2Q14, partly due to the lack of launches, and 2H14 may end up performing the worst since 2H08.
In view of the large build-up in unsold units, some developers have resorted to cutting their profit margins in a bid to move units. A total of 3 projects have been reportedly to have re-launched at lower prices since the beginning of 2014. The price cuts have indeed improved their sales (Figure 3), indicating the importance of getting the price right in today’s market.
Similarly, projects saw better sales when re-launched at lower prices in 2013 such as d’Leedon and The Interlace, especially for the bigger units, which were given bigger discounts.
projects relaunched at lower prices in 2014 - EDGEPROP SINGAPORE
sales volume of relaunched discounted projects in 2014 - EDGEPROP SINGAPORE
Future Outlook
Developers have to be increasingly careful about pricing their projects as buyers now have to work on a tighter budget after the implementation of the Total Debt Servicing Ratio (TDSR), which limits an individual’s ability to borrow.
The pressure is now on the developers with remaining unsold units to stimulate sales amid the doldrums or otherwise face hefty levies should they fail to finish selling all units within the stipulated time period.
Larger developments will be hit harder due to the larger number of units the developer has to sell in a slow market, a higher holding cost, as well as heftier levies for extension.
The situation is likely to become worse with more upcoming projects gearing up for launch. Unless market sentiments improve in the near future, we expect projects that are not doing well to slash prices in order to move units, especially when they are near completion. The price cuts will be more severe for projects near future land sales where the winning bids are lower.
supply of non-landed private residential in the pipeline - EDGEPROP SINGAPORE
summary of QC policy and ABSD on developers - EDGEPROP SINGAPORE
COMPLETED PROJECTS RANKED BY ESTIMATED NUMBER OF UNSOLD UNITS - EDGEPROP SINGAPORE
UNCOMPLETED PROJECTS RANKED BY ESTIMATED NUMBER OF UNSOLD UNITS
uncompleted projects ranked by estimated number of unsold units - EDGEPROP SINGAPORE