How to bottom fish for property deals

How to bottom fish for property deals

As property prices continue to chart a downward trajectory, Warren Buffett’s investment mantra — be greedy when others are fearful — has been cited recklessly to seduce investors to part with their money. Given that prices of private non-landed homes have fallen some 8% from their last peak in 3Q2013, now is definitely a better time to enter the market compared with 2013. But now is not necessarily a better time than next year.

New headwinds from China and the eurozone’s unconvincing economic recovery are cues that the property market has yet to bottom. Separately, vacancy rates of non-landed homes could hit a historical high in 2016. At best, the current pace of price decline of around 1% per quarter will continue into 2016.

Against this backdrop, bottom fishing for beaten-down assets is a more accurate exposition of value investing than picking any asset simply because its price is not toppish.

 

Automating the search process

Bottom fishing is simple in principle, but challenging in execution. For the man on the street, the search for value deals typically begins with flipping through the classifieds or combing property portals and shortlisting deals based on a hunch. He must then gather market information to estimate the market value of the property and establish if there is indeed a discount. Third, he must assess whether the discount is sufficient or he should just wait for general prices to decline further.

Today, technology can streamline the search process. TheEdgeProperty.com can pick out undervalued listings by comparing the property’s asking price against its fair value. In addition, the map search tool, which was rolled out recently, allows users to identify undervalued listings within a preset radius of a certain landmark.

A property listing will be flagged as undervalued when the asking price falls below the Edge Fair Value — a valuation tool developed in collaboration with licensed valuers. The fair value methodology takes into account factors such as comparable transactions, floor level, size and outliers.

However, technology comes with limitations and investors must continue to exercise judgement and conduct due diligence. A lack of recent comparable transactions, for example, increases the fair value’s margin of error, which in turn, changes the discount margin of the so-called undervalued listing. Ground-floor units with a large patio or private enclosed space may also be flagged as undervalued as their large floor area would mark down the per square foot asking price.

Budget poses another constraint for investors seeking value deals. In the resale or completed properties segment, the majority of undervalued deals were in the city fringe and high-end segments and the average price was over $2 million. Our past study also shows that large units of more than 1,500 sq ft accounted for 41% of the total unprofitable transactions in 3Q2015. This is hardly surprising as properties with a larger price quantum are bearing the brunt of a tighter credit environment and interest rate hikes.

District 15 (Marine Parade, Katong, Joo Chiat, East Coast) topped the list of areas with the highest number of undervalued deals in the resale or completed properties segment, followed by District 20 (Thomson, Ang Mo Kio, Bishan, Braddel) and District 10 (Tanglin, Farrer, Holland, Bukit Timah and Ardmore).

 

 

Look under the hammer

According to property consultancy DTZ, a total of 21 properties were put up for mortgagee sale in 3Q2015. Excluding the landed homes, these properties averaged 1,527 sq ft in size.

The rising number of mortgagee sales has turned property auctions into a hunting ground for investors as such properties tend to be sold at a bargain. In September, a 1,690 sq ft low-floor unit at Amber Point that was put up for mortgagee sale found a buyer at $2 million, or $1,183 psf. Other 1,690 sq ft units changed hands at between $1,272 and $1,450 psf in 2014 and 2015, albeit on high floors.

In August, a mid-floor shoebox unit at Prestige Heights on Bales tier Road went under the hammer for $500,000, or $1,452 psf. Comparable units in the project were transacted at between $1,597 and $1,751 psf in 2014 and 2015.

 

Selected mortgagee sales in 3Q2015: Properties put up for mortgagee sale tend to be sold at a discount

Sold in Project Address Area (sq ft) Floor level Price ($psf) Comparable transactions ($psf)
Sep-22 Amber Point Amber Road 1,690 Low 1,183 1,272 to 1,450*
Aug-25 Prestige Heights Balestier Road 344 Mid 1,452 1,597 to 1,751
Jul-30 Westmere Jurong East Street 13 1,109 Low 882 891 to 925

 

Is conservative the way to go?

Another famed investor, Walter Schloss, preferred buying assets at a discount rather than to buy earnings. Earnings, he said, can change dramatically in a short time and an investor must know much more about a company if he buys earnings.

Real estate investors who seek to buy earnings or rental returns should stick to the timeless adage of picking properties with strong location attributes. While this may seem like common sense, there are studies that claim projects near MRT stations do not necessarily command the highest rental yields — and such studies have made headlines.

This may be true for gross yields. Net rental yields, on the other hand, must take into account the vacancy rates of the project and, unfortunately, such data is not readily available.

Our past studies have also proven that high vacancy rates may not necessarily manifest in lower rents. Hence, it is erroneous to assume that the average rental value and gross yield of a project have factored in vacancy rates. Meanwhile, conventional wisdom tells us that well- located properties would be easier to let, leading to a shorter down time in between tenants.

 

Click here to start fishing for property deals.

 

This article appeared in The Edge Property Pullout, Issue 706 (December 7, 2015) of The Edge Singapore. 

 

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Where are the deals?

Where are the deals?

With a softening market, the number of properties for sale below market prices are likely to increase.  Owners who have over-extended their financials during the peak might find it difficult to make their monthly mortgage payments when rents are declining.  Rising interest rates will likely exacerbate the problem.  Recently, we have also written articles on the increasing number of distressed sales for luxury condos and landed homes.

If you’re looking to bottom-pick and find these under-valued properties, where do you start? We attempt to help you narrow down your search process by analysing tens of thousands of properties for sale.  We segregated apartments and condos into their respective districts and use The Edge Fair Value to assess the fair market prices (Note: The Edge Fair Value is an indicative value based on information provided by subject property, recent past transactions or adjusted listings of similar properties.  The methodology is endorsed by professional licensed valuers).  Properties with asking prices below 5% of the fair market values are categorised as ‘Deals’.

 

Table: Deals in the different districts for apartments & condos

 

 

All Properties

Resale/Completed Properties

District

Key Towns

# of Properties For Sale

# of Deals

% of Deals

# of Properties For Sale

# of Deals

% of Deals

1

 Marina, Raffles Place, Boat Quay

1,314

4

0%

462

3

1%

2

 Anson Road, Chinatown, Tanjong Pagar

674

8

1%

209

-

-

3

 Queenstown, Tiong Bahru, Commonwealth

1,466

30

2%

169

5

3%

4

 Telok Blangah, Harbourfront, Sentosa

1,148

47

4%

436

9

2%

5

 Clementi, Dover, Buona Vista

1,291

11

1%

282

3

1%

6

Beach Road, City Hall, Clarke Quay

6

-

-

-

-

-

7

Middle Road, Bugis, Beach Road

976

19

2%

87

4

5%

8

 Little India, Farrer Park, Serangoon Road

565

-

-

192

-

-

9

 Orchard Road, River Valley, Cairnhill

2,843

39

1%

961

5

1%

10

 Tanglin, Farrer, Holland, Bukit Timah, Ardmore

3,517

83

2%

984

14

1%

11

 Thomson, Novena, Newton

1,127

4

0%

485

4

1%

12

 Serangoon, Toa Payoh, Balestier

1,235

18

1%

317

1

0%

13

 Braddell, Macpherson, Potong Pasir

1,027

58

6%

55

-

-

14

Sims, Paya Lebar, Geylang

1,901

117

6%

291

13

4%

15

Marine Parade, Katong, Joo Chiat, East Coast

3,119

110

4%

1,042

67

6%

16

 Kew Drive, Upper East Coast Road, Bedok

1,274

27

2%

424

5

1%

17

 Flora, Loyang, Changi

550

2

0%

102

2

2%

18

 Simei, Tampines, Pasir Ris

1,820

17

1%

406

3

1%

19

 Hougang, Punggol, Sengkang, Serangoon Garden

4,789

265

6%

588

11

2%

20

Thomson, Ang Mo Kio, Bishan, Braddell

1,289

32

2%

192

15

8%

21

 Upper Bukit Timah, Ulu Pandan, Clementi Park

635

15

2%

226

1

0%

22

 Lakeside, Jurong, Boon Lay, Tuas

953

72

8%

187

2

1%

23

 Choa Chu Kang, Bukit Batok, Bukit Panjang

1,640

56

3%

330

2

1%

24

 Lim Chu Kang, Tengah

13

-

-

-

-

-

25

Kranji, Woodlands, Admiralty

781

56

7%

93

6

6%

26

 Upper Thomson, Springleaf, Mandai

119

1

1%

62

1

2%

27

 Sembawang, Yishun

1,836

88

5%

103

2

2%

28

 Seletar, Yio Chu Kang

1,122

106

9%

36

-

0%

 

Total

39,030

1,285

3%

8,721

178

2%

 

Overall, there are 1,285 ‘deals’ or properties listed at 5% below their fair market values.  Out of these, 178 properties are in the resale market.  Considering developers are beginning to reduce prices on new launches to move unsold units, it is not surprising that majority of these are for projects that have yet to be completed.  For example, the highest proportion of deals is in District 28 around Ang Mo Kio & Yio Chu Kang.  Zooming in, it appears a substantial concentration of deals are in the Floraville development, a 50-unit freehold project with an average pricing of $1,410 psf.  An analysis of district 19, the district with the most number of deals, provides the same conclusion – majority of these are located at La Fiesta and The Vales, projects that are still under construction.

Although a significant number of deals come from new projects, hidden gems can also be found in the resale/secondary market.  In district 10 around Holland and Bukit Timah for instance, there are 14 deals in the resale market, where deals can be found in projects such as The Rochester, Duchess Residences and The Marq.

Bargain hunting can be a frustrating experience, with lack of systematic and transparent information hampering the search process.  Knowing where the deals are would be a good start.

 

Want to find more hidden gems? Start the discovery using our intuitive map-search

 

As we are not party to the contract between the client and agent, we are not able to verify information provided by the agent.

 

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Overlooked gem in the East

Overlooked gem in the East

A Singaporean who only wants to be known as Tee says he currently lives in the Changi area and is looking for his next property investment. “I want to see if there’s any chance to buy in this area (Tampines North),” he says. Tee was at the sales gallery and showflat of the 597-unit The Santorini, a condominium located off Tampines Avenue 10. It is being developed by Chinese developer MCC Land, which is a subsidiary of Hong Kong and Shanghai-listed Metallurgy Corp of China.

There was a hubbub five years ago over the new Jurong Lake District, which is poised to be the next CBD in the 2008 Master Plan; the announcement of the North Coast Innovation Corridor in the northern reaches of Woodlands in 2013; as well as the revamped Master Plan for Punggol 21 Plus announced by Prime Minister Lee Hsien Loong at the National Day Rally speech in August 2007, with enhancements and introduction of leisure facilities in August 2014. “By comparison, Tampines appears to be overlooked,” says Ooi Yi Tung, director of analytics and technology at TheEdgeProperty.com.

More than two decades ago, Tampines, Woodlands and Jurong were identified as regional centres. Tampines Regional Centre was the first to take off, and is by far the most established regional centre compared with Jurong and Woodlands, which have largely been associated with industrial estates.

“Traditionally, Tampines has been perceived as a more upmarket suburb compared with Jurong and Woodlands, and therefore, a more desirable neighbourhood to live in,” says Ooi. However, the price trend between Tampines and Jurong started to reverse sometime in 2008, following the announcement of the new Jurong Lake District. “The Master Plan had a huge influence on property prices,” he adds.

 

‘Future growth priced in’

When the first private condo in the new district was launched in June 2013, namely the 738-unit J Gateway by MCL Land, all units were sold on the first day of launch. The 99- year leasehold condo, which is located near the Jurong East MRT interchange station, even saw a 484 sq ft unit hit a record high of $1,774 psf. Even though the launch coincided with the introduction of the total debt servicing ratio (TDSR) that same evening, units that were returned to the developer were quickly snapped up by other interested parties.

The 696-unit Lakeville, MCL Land’s 99-year leasehold condo in Jurong West, was launched in April last year. As at end-August, 518 units had been sold at a median price of $1,261 psf. The highest price psf achieved for the condo was for a 635 sq ft unit that was sold for $1,526 in February.

“Having seen some of the projects achieve highs of $1,500 to $1,700 psf, I think private condos in the West have already priced in future growth,” says Ooi.

In other suburban areas, 99-year leasehold private condos similarly hit record highs. Among them was Centro Residences on Ang Mo Kio Avenue 8, where a 1,001 sq ft unit was sold in early 2013 for a jaw-dropping $1,920 psf. The price was higher than the $1,893 psf achieved at Sky Habitat in Bishan in 2012. Even after discounting the furnishing (the unit was sold fully furnished), the price of the unit at Centro Residences is likely to be about $1,800 psf, reckons Ooi.

At Watertown, an integrated development with private condo and shopping mall, a 1,475 sq ft unit in the condo was sold for $1,654 psf in February 2013. The project is linked to the Punggol MRT, LRT and bus interchange stations in Punggol Central. “Punggol is one of the furthest points from the CBD, and yet, it managed to achieve such prices,” says Ooi. “Ten years ago, nobody wanted to live in Punggol.” Even the first government land tender in Punggol drew no bids.

It was not until the government rolled out its revamped Punggol 21 Plus master plan to turn Punggol into the first waterfront public housing estate in 2007 that more young couples were willing to move there. In August 2014, the prime minister announced the introduction of lifestyle elements with Punggol Waterway, facilities for water sports, parks, new eateries, shopping mall, as well as the positioning of Punggol as a town in the northeast region.

“My view is that the government wants Punggol to succeed as it will help divert demand from some of the hot areas in Singapore, thereby ensuring that prices will not be driven up and congestion will ease,” reckons Ooi. “So, the amount of attention on Punggol has been tremendous.

"Riding on the future of the upcoming North Coast Innovation Corridor is North Park Residences in Yishun. The 920-unit, 99-year leasehold condo sits on top of North Point City, a future shopping mall linked to the existing Northpoint Shopping Centre and integrated with the Yishun MRT station, bus interchange and a new regional library as well as community club. Launched in April, the prices of 431 sq ft studio units at the condo crossed $1,500 psf and hit a high of $1,572 psf.

 

Chart 1

 

Chart 2

 

Forgotten part of the East?

In the East, the market has been more segmented, notes Ooi. New launches of 99-year leasehold condos around the Tanah Merah MRT interchange, such as Eco, Urban Vista and The Glades, have seen prices surpass $1,700 psf. In Simei, My Manhattan, which is located across the road from the revamped Eastpoint Mall and the Simei MRT station, saw prices hit a high of $1,462 psf for a 441 sq ft unit. Launched in early 2011, the 301-unit condo was completed last year.

A new private residential enclave has sprouted up in the area bordered by Tampines Avenue 10 and Avenue 1, which is adjacent to Tampines Quarry and just a three-minute drive to Tampines Regional Centre. One example is the 630- unit Q Bay Residences, which is located next to The Santorini. Launched in January 2013, the 99-year leasehold condo has been fully sold and is expected to obtain Temporary Occupation Permit by early 2016.

The highest price psf achieved for the condo was $1,276. Meanwhile, at Waterview, which is located opposite Q Bay Residences, the highest price psf achieved was $1,184 in May 2013. The 99-year leasehold condo was launched in 2010 and completed last year.

At The Santorini, the highest price psf achieved was $1,274. Units sold in the months of June to August generally ranged from $1,058 to $1,198 psf, based on caveats lodged with URA Realis. “Obviously, there are huge price discrepancies among the East, West and Northeast,” says Ooi. “None of the private condos crossed $1,300 psf. I think this part of Tampines is the forgotten part of the East.”

The eight 15-storey blocks at The Santorini are oriented such that units will enjoy views of the nearby Tampines Quarry Park and Bedok Reservoir Park. Besides being a short drive to Tampines Regional Centre, the project is located near schools such as United World College, St Hilda’s Primary School, Temasek Polytechnic and Singapore University of Technology and Design.

 

The model of the 597-unit The Santorini located on Tampines Street 86 off Tampines Avenue 10 and Avenue 1

 

One of the three showflats at The Santorini designed by SuMisura

 

The dining area of a showflat at The Santorini designed by SuMisura

 

Extension of Tampines Regional Centre

Tampines itself is also being transformed. A new Draft Master Plan for Tampines North was announced in 2013, says Eugene Lim, key executive officer of ERA Realty. It includes the addition of 21,000 homes — both public and private housing — as well as shopping facilities and two parks, in addition to the existing Tampines Quarry Park. “Right now, you see construction, but in 10 years’ time, this area will be transformed into a new township,” he says.

The infrastructure for the Tampines North industrial area, which is home to global tech companies such as Hoya Electronics, IBM and Siltronic, has been completed, adds Lim. The advanced display and high-tech wafer parks are also up and running. Tampines is home to big-box retailers such as Courts Megastore, Giant Hypermarket and Ikea Tampines, which have been in operation since 2006. This is on top of the three malls located in Tampines Regional Centre next to the MRT station, namely Tampines Mall, Century Square and Tampines One.

Future residents of Tampines will be able to look forward to the upcoming Tampines Town Hub that is expected to be completed progressively from end-2016, Lim says. The first phase of the hub will see a community centre, retail and F&B outlets, one of Singapore’s largest hawker centres with 800 seats, a badminton hall with 20 courts, six swimming pools and a 5,000-seat stadium with a FIFA-approved football pitch.

Plans are also underway for a future Cross Island MRT Line, which will start from Changi in the East, pass through Loyang, Pasir Ris, Ang Mo Kio, Sin Ming, Bukit Timah and Clementi, and terminate in Jurong Industrial Estate. Ooi reckons prices of private condos located off Tampines Avenue 10, such as The Santorini, will see an uplift in prices when these pipeline plans start to materialise.

 

Tampines — most affordable suburb?

In terms of average prices in 2015 to date, Tampines appears to be the most affordable, Ooi points out. Prices of HDB resale flats in Tampines are around $400 psf, while those of executive condos (ECs) — a hybrid between private and public housing — launched in recent years have hovered in the range of $750 to $800 psf. “ECs and HDB flats provide a natural price support level and price stability for private condos in the area,” he adds. Tampines is ranked among the top three HDB towns where owners of five-room HDB flats (that have exceeded the minimum occupation period of five years) have been able to see the highest gross profits — exceeding $150,000 (see Chart 3). There are also more five-room HDB flats in Tampines relative to other established HDB estates, such as Ang Mo Kio and Jurong East, says Ooi. Therefore, in Tampines, HDB flat owners who sell in order to upgrade to a private condo are able to pay a higher down payment and are in a better position to secure financing even in an environment of tightened financing under TDSR, he adds.

 

Chart 3

At The Santorini, permanent residents account for 25% of the buyers to date. The proportion of PRs is higher than that of recent suburban launches, such as High Park Residences on Fernvale Road, where over 1,000 units were sold within the first weekend of launch in July. More than 90% of the buyers were said to be Singaporeans. The higher proportion of PRs at The Santorini reflects its proximity to schools as well as employment hubs in the East, such as Changi Business Park, the Tampines North industrial area and Changi Airport.

Recognising the potential of the area, MCC Land beat 11 others to win its second residential parcel located off Tampines Avenue 10 in April. The 99-year leasehold site, which is located near The Santorini, was purchased for $227.8 million ($483 psf per plot ratio) and can be developed into a residential project with about 490 units.

In the eastern region, the number of units that are available for rent upon completion is also relatively low at 8% to 12% compared with 20% to 30% in the West, notes Ooi. Gross rental yields for two- to four-bedroom private condos in Tampines are about 4%, which is comparable to yields in Woodlands and Jurong West, he adds (see Chart 4).

 

Chart 4

Investors such as John Lim, a Singaporean, are convinced that there is growth potential in the East. “I am staying in the northeast region,” he says. “I think this is a good time to explore the East. I now have a better comparison of how the East stacks up against the rest of Singapore.

”Meanwhile, Derrick Ho, who was also at The Santorini showflat for the property talk, hails from Yishun. He is interested in buying a unit in the Tampines area to be near St Hilda’s Primary School. “I’m planning to move to Tampines as it will mean a shorter commuting time to school for my child,” he says. 

Interested in overlooked gems in the east? Click here to start searching

 

This article appeared in The Edge Property Pullout of Issue 697 (October 5, 2015) of The Edge Singapore

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Be greedy when others are fearful

Be greedy when others are fearful

The time has come for opportunistic buyers to scavenge for bargains

One of the most memorable quotes in investing is “Be fearful when others are greedy and greedy when others are fearful”. The person who said this is none other than Warren Buffett, arguably the most prominent investor of our time, who amassed most of his fortune purely from stock-picking and buying undervalued companies.

Can the same principle be applied to the Singapore property market today? It is yesterday’s news that buyers are adopting a wait-and see attitude out of fear or caution that prices might slip further. Their concerns are not unfounded, given the multiple property curbs, rising interest rates, softening rental market and news of a potential supply glut afflicting the market. It would be irrational to dismiss this as “herd mentality”, but too much repetition can cloud investors’ judgement. As the market continues to chart a downward trajectory, we believe the hunting season has begun for opportunistic buyers scavenging for bargains in the housing segment.

The high-end and city-fringe housing segment, for example, could be investors’ next bet. A survey of listings on The Edge Property showed that District 11 (Novena and Thomson area) topped the charts for potential discounts offered (see Figure 1).Around 19% of listings in District 11 were found to be below the median transacted price over the past six months. Of these so-called undervalued listings, the discount was 14% below the median transacted price. 

 

Figure 1: Average discount* among undervalued listings ranked by district

Average discount among undervalued listings ranked by district

* Median asking price versus median transacted price in the district adjusted for size

 

With the exception of District 19, which stretches from Serangoon to Punggol, the top 10 districts in terms of discounts offered were in prime and city-fringe locations. This came as no surprise, given that prices of non-landed homes in the Core Central Region (CCR) and Rest of Central Region (RCR) have fallen since their last peaks by around 7%. On the other hand, prices in the Outside Central Region (OCR) have only declined by 4% since their last peak.

The discounts should not be taken at face value, but rather as a litmus test across locations. The study categorised the asking and past transacted prices of non-landed homes into various size bands before computing the discount rate in order to minimise distortions where only larger units would be found to be undervalued.

If a hefty price tag is a deterrent, city-fringe homes would be a more palatable choice. According to caveats lodged with the Urban Redevelopment Authority (URA) between January and April this year, the median price for non-landed homes in the RCR was $1.2 million, compared with $2.2 million in the CCR. Separately, the mass-market segment offers bite-sized opportunities. No surprise here, the discount magnitude among its undervalued listings was smaller than its pricier cousins.

A study on asking prices might raise contention, but the message is simple and clear: It is time for undecided buyers to start doing their homework and they might uncover trophy deals.

Those still unconvinced and hoping for prices to nosedive might be in for a disappointment. There are many such people apparently, which explains the gridlock between buyers and sellers and hence, the low sales volume. The following is why a nosedive in prices may remain a pipe dream for investors. Preliminary data from the Manpower Ministry showed that the unemployment rate continued to trend down to 1.8% as at March 2015, lower than the 2.1% seen in the boom year of 2007. The Singapore GDP, meanwhile, is forecast to expand between 2% and 4% this year. Historically, market crashes were only associated with economic recessions, in which peak-to-trough prices lost altitude at a compounded rate of more than 5% a quarter. The current compounded rate of decline at 0.9% a quarter seems to pale in comparison.

Tender prices for private housing sites sold under the Government Land Sales (GLS) programme have also held firm, with the exception of a few select locations where there was perceived oversupply. Even these were part of prudent strategies to hedge against a hike in construction costs and allow developers flexibility in pricing their projects. Separately, top bids for private housing sites sold this year have generally exceeded market expectation. The sites were highly contested, drawing nine to 16 bids each. Having addressed the undersupply situation post-global financial crisis, the government continued to moderate housing supply offered under the GLS programme and the number of homes offered under the Confirmed List has dwindled from 4,600 units in 1H2014 to 3,020 units in 1H2015.

More than anything, the current downtrend in prices is artificially induced by the total debt servicing ratio framework (TDSR) and additional buyer’s stamp duty. Hence, a potential opportunity in the current market is to shortlist properties with discounts that may offset the ABSD.

We attempted to pick some resale projects with undervalued listings that offer at least a 5% discount to their median transacted price for the past six months. This does not mean that prices in these projects have fallen dramatically but just that there might be value deals that await those who search diligently. The size was set at 1,200 sq ft and below. Three projects emerged from the search — Dover Parkview, D’Leedon and Melville Park. For bigger units of more than 1,200 sq ft, more projects surfaced — The Interlace, Costa Del Sol, D’Leedon, Goodwood Residence, Changi Rise Condominium, Urban Resort Condominium and Kovan Melody. The list would be longer if not for the search criterion, which requires at least five transactions over the past six months within the size category. Many projects, as a result, were removed from the radar.

The current scenario of low transaction volume versus stubbornly high prices defies the basic logic of supply and demand. To put it simply, buyers are expecting ridiculously low prices, while sellers are not willing to budge. In other words, the market is in a state of disequilibrium. Until sellers’ holding power is shaken by unforeseen external shocks, the odds are against buyers winning the tug of war.

Meanwhile, the rental market would act as a cushion for owners against rising interest rates and foreclosures. This brings us to another point — the loss in rental yield for investors who continue waiting on the sidelines. Based on URA data, gross rental yields averaged 3.2% in 1Q2015 and were relatively uniform across districts, with a standard deviation of 0.4 percentage point. A more conservative estimate based on the 25th percentile rents puts the rental yield at 2.8%, with a standard deviation across districts of 0.3 percentage point.

While tender prices for private housing sites have held firm, executive condominium sites saw prices buckling. Prospective buyers might wish to watch out for this segment. In February, two EC sites in Sengkang and Woodlands were sold for about $280 psf per plot ratio, a price unheard of since 3Q2011. Based on the tender price, EC prices in Sengkang and Woodlands may witness a price correction of 5% to 8% next year, from around $790 psf to between$730 and 750 psf (see Figure 2). In addition, eight EC projects are expected to be launched this year. Developers of these projects that have submitted their tender prices, based on previous market conditions, could adjust their profit margins to price their projects competitively. 

 

Figure 2: Land cost of executive condominium sites and their average launch price

Land cost of executive condominium sites and their average launch price

 

While prices may continue to head south, undecided buyers should reflect on whether the prospect is worth the wait. At the rate non-landed prices are falling at a compounded average of 0.9% a quarter, the opportunity costs of waiting include a loss in interest savings amid a rising Sibor (Singapore interbank offered rate) and rental income foregone. Revisiting those listings, there are value deals waiting to be uncovered, where discounts offered surpass the magnitude market prices have fallen.

With prices having come off for more than a year now, the question of whether it is the right time to buy has become less relevant. Buyers should instead evaluate the property’s location attributes, their investment needs and affordability threshold should the market take a turn for the worse. Ultimately, the most important question should be whether we can sleep with those numbers.

This article appeared in The Edge Property Pullout of Issue 677 (May 18) of The Edge Singapore.

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