Dichotomized private property performance in early 2012

The Urban Redevelopment Authority (URA) released the flash estimates for prices of private residential properties in 1Q 2012 in early April. Based on the flash estimates, private residential property prices showed the first quarterly decline in 1Q 2012 since 2Q 2009.

It decreased by an average of 0.1% in 1Q 2012, compared to the 0.2% increase in 4Q 2011. Prices of non-landed private residential properties decreased by 0.9% in Core Central Region (CCR) and by 0.7% in Rest of Central Region (RCR) in 1Q 2012. However, prices of non-residential properties in Outside Central Region (OCR) increased by 1.2% q-o-q in 1Q 2012.

Short-term Dichotomy in Private Property Prices

Principally, the fall was led by prices of non-landed residential properties in the CCR, of 0.9% q-o-q in 1Q 2012. The fall was expected as there was prolonged lacklustre buying interest for high-end residential properties, due to the economic uncertainty where buyers were cautious of committing to properties requiring large price quantum and the ABSD which probably diverted some foreigners away from the sales market, who opt for renting in lieu of buying.

The 0.9% fall in prices of non-landed homes in the CCR reflected some relent by sellers, particularly those who have dire need to sell their properties. The price decrease is also fundamentally in the resale market, for there were limited new launches and sales in the CCR in 1Q 2012.

However, as the majority of home sellers in the CCR were still financially sound and able to hold on to their properties for long term investments, there were limited number of such homes put up for sale and hardly any owners who took drastic cuts in prices. The stalemate in property seekers and sellers’ price expectations persist, hence resulting in only a marginal price fall. The marginal price fall is largely the result of individual transactional negotiation skills than an across the board significant sellers’ price cutting for centrally located homes.

Non-landed homes in the RCR fell by 0.7%, in 1Q 2012. Although homes in RCR are still considered a league above that of OCR due to the convenience and ample lifestyle amenities in the vicinity, the heat for suburban homes is intensifying in recent times with many attractively designed project launches and enhanced accessibility. Many homebuyers who once favour homes in RCR, particularly studio to two bedroom homes, are looking at suburban projects, particularly the well-located ones, which are in any case mostly 99-year leasehold and may be more within their budget.

Prices of non-landed homes in the OCR rose by 1.2% in 1Q 2012, defying the works of the last set of cooling measures and the economic slowdown but this was expected given the robust buying interest for numerous suburban projects – either those which were attractively priced in initial phases or those which were creatively conceptualized. Also, housing units have become smaller, commanding higher price psf. Although the rise was considered slight, of 1.2%, this placed prices of suburban condominiums at again a record high. The record high prices continue to raise concerns about affordability and sustainability, although to some extent it is backed by strong owner occupation demand. The strong interest for suburban condominiums could also be due to overwhelming rise in housing aspirations where many home seekers ‘instantly gratify’ by opting for attractive projects that only require progress payments, compared to resale which require almost immediate financing.

What beholds for Private Residential Properties?

1Q 2012 will most likely be known as the first quarter where overall private residential prices have become a thing of the past, although inherently, the concern of affordability and sustainability of suburban condominium prices may persist if the exuberance continue in absence of new cooling measures.

The first half of 2012 is expected to see prices of non-landed homes in the CCR and RCR correcting by up to 5%. Prices of such homes having fallen by 1% in 1Q 2012, have some possibility to correct by 2 to 3% in the second quarter, in response to continued buyers’ resistance and the weakened leasing market which raise caution among investors. The weakened leasing prospects was largely underpinned by a moderation in new expatriates seconded to Singapore and companies’ cost-cutting measures although Asia remain the only spotlight of growth in the challenging world economic context.

Homes in the CCR and RCR are often purchased with investment intention and while the long term property fundamentals remain good in consideration of their location, the current moderated leasing conditions have put risk averse buyers at the sidelines for such homes. In the current economic slowdown and weakened business conditions, the lack of on-going tenancy bundled with a property purchase to entice investors may put some property seekers for such homes at sidelines.

For suburban condominiums, the buying interest can still persist in 1H 2012 on the back of ample attractively designed projects and selected HDB upgraders who felt they can re-invest in a better of quality of life by cashing out on their resale flats, in the absence of new cooling measures that can serve to instill cautiousness and prudence among property seekers.

Resale property prices in the suburban areas will benefit from the slew of performing launches in the vicinity but the rise is unlikely to be major as most projects are priced attractively and reasonably notwithstanding good sales rate. Despite good take-up, prices of most new suburban projects are unlikely to be excessively raised in the coming months as developers adopt the objective of moving sales volume through competitive pricing or offering attractive design in light of ample new private condominium and EC choices.
The distinct price dichotomy across homes in the 3 regions is however unlikely to persist for too long, into the later part of 2012, as opportunistic local investors who have ready financing power may make joint purchases in good centrally located property buys, when prices of high-end residential properties saw pronounced falls in 2H 2012. Buyers who are quick to react in the window opportunity may bring prices of such properties to stronger footing, and lower the need for such sellers to cut prices. Additionally, any exuberance in the private mass market segment though backed by genuine homebuyers’ interest may not be in sync with economic fundamentals and may comprise of some homebuyers who purchased beyond one’s means, challenging one’s longer term financial capacity.

Ong Kah Seng, Director, R’ST Research    

www.rstresearch.com.sg