(File pix) There are many favourable factors going for Singapore but investors need to look at things in perspective to avoid overpaying for sites or homes.
(File pix) The three-bedroom units in OUE Twin Peaks, one of the luxury condominiums near Orchard Road, have sold like hot cakes. Pix from www.twinpeaks.com.sg.
(File pix) For the real estate sector, Singapore remains amongst the most transparent market in the world for investors.

Billion-dollar bids for government land, larger and larger quantum paid for private projects for redevelopment and new launches of condominiums sold out in a day! These have been the eye-catching headlines for Singapore’s private residential property market.

Since June last year, we have noticed a change in developers’ and consumers’ appetite for private properties. The tipping point was the successful launch of the GEMS Residences, a 578-unit private condominium in the suburb of Toa Payoh, one of the oldest public housing estates in Singapore. The developer did an excellent job of marketing the project with some clever gimmicks like car rental, 24-hour concierge and private chef services. Since then, the market has gone from strength to strength.

While there are many favourable factors going for Singapore, investors need to look at things in perspective to avoid over-paying for sites or homes. Here are our observations in Singapore private residential market.

Billion-dollar bids for land

In our opinion, one of the reasons for the surge in the number of billion-dollar land bids is the sites offered for sale by the government are located at the relatively good locations. More importantly, it is the government’s deliberate effort to push out larger sites for sale. As seen in Figure 1, the average gross floor area of the sites sold this year is 29 per cent higher than that of the sites sold last year.


Figure 1.

Figure 1: The average GFA of sites in 2017 is higher than in 2016.

(Source: URA, HDB, FundPlaces Research; Note: Data obtained on Aug 14 2017)

Foreign developers are more active

Another reason would be the depleting landbank that caused developers to bid aggressively, especially the foreign developers. It is notable that foreign developers have outbid traditional local big boys in three out of eight government land sites this year. This is because they have different cost structures, returns requirements and strategic objectives. Their active participations had made the land bidder exercise very competitive in Singapore.

Primary home sales rebounded but are nowhere near peak levels.

These aggressive land bid news had generated positive market sentiments. Together with various promotion campaigns introduced by developers, the primary home sales market rebounded. While month-on-month sales momentum has picked up, we found that the number of units sold is far from peak sales level in 2013, where the monthly sales volume reached more than 2,500 units in a month. The median selling price is still lower than the peak in 2014.


Figure 2.

Figure 2: No. of monthly new sales is increasing but still lower than the peak in 2013.

(Source: URA, FundPlaces Research. Note: Data obtained on August 14 2017)

Vacancy rate remained high

The increase in primary home sales had contributed to four consecutive quarters of decline in vacancy rates. The overall vacancy rate in 2Q 2017 was 9.1 per cent, which was lower than the peak of 10.4 per cent in 2Q 2016. Despite the decline, vacancy rates remained high compared with historical levels in 2010, where it reached as low as five per cent. This is an evidence that the market starts to clear its stock.


Figure 3.

Figure 3: Vacancy rate of non-landed residential properties registered four consecutive quarters of decline.

(Source: URA, FundPlaces Research. Note: Data obtained on August 14 2017)

Total unsold inventory fell but remained high as compared to historical level

Looking at the total unsold inventory, we noticed that it fell for the fourth consecutive months. Including those units that have not launched by the developers yet, the total number of unsold units held by the developers fell one per cent month-on-month and 31 per cent year-on-year to 10,303 units. This represents 24.9 per cent of the total number of units that developers have obtained permits to sell but have not received certificate of statutory completion (CSC) yet. Despite this percentage declining 12.7 percentage points from the peak of 37.6 per cent, the level of unsold inventory remained high as compared to 19.3 per cent in May 2013, as seen in Figure 6. The market still needs some time to clear the stock.


Figure 4.

Figure 4: The percentage of total no. of units unsold declines (Ex-ECs).

(Source: URA, FundPlaces Research. Note: Data obtained on July 17 2017)

Private Residential Property Index continued to decline

While the market continued to clear the stock, the official non-landed Private Residential Property Price Index registered its 15th consecutive quarters of decline in the second quarter of this year. This is the longest period of price decline since 2004. As compared to previous down cycle where the index declined 41.7 per cent during the Asian financial crisis, 20.7 per cent during the SARS (severe acute respiratory syndrome) period and 26.1 per cent during the global financial crisis, the index has only declined 10 per cent so far in the current down cycle. There is a high possibility that the index would continue to decline for one or two quarters.

Figure 5: Non-landed Private Residential Property Price Index declined for 15Q in 2Q 2017.

(Source: URA, FundPlaces Research. Note: Data obtained on August 14 2017)

What’s ahead for the market then?

In our opinion, the upswing in sentiment among the consumers is a result of consumers running out of investment options while any economic pain from Singapore’s slower economic growth remains limited. In addition, the announcement by the Singapore government that they are unlikely to ease any of the taxes triggered investors who have been waiting on the sidelines to bite the bullet and jump onto the bandwagon.

More broadly, Singapore has many positive attributes. It remains one of the premier financial hubs and has a government that is among the few that is cohesively promoting innovation and new technologies. While its economy might have slowed, its general attributes as a great place to conduct business and the conducive living environment have continued to draw the wealthy Asians to allocate some of their funds to Singapore real estate.

For the real estate sector, Singapore remains among the most transparent market in the world for investors. The key factors going for Singapore now are that the surge in the sale of private apartments for redevelopments will reap a windfall for the owners which will support another surge in demand for housing.

Our recent site visits to various residential projects found that there is an increasing interest in luxury properties in Singapore. The three-bedroom unit in OUE Twin Peak, one of the luxury condominiums near Orchard Road, we visited in the morning was sold in the afternoon.

For investors, it is worth looking at luxury properties in Singapore now. We believe the downside of the luxury residential market is limited. We expect Singapore’s overall property prices to continue its decline over the next one or two quarters with a slow recovery thereafter.


Story courtesy of Henry Butcher Malaysia. Tan Kok Keong is chief executive officer of REMS Advisors and Co-founder of FundPlaces, an alternative investment platform for real estate. He has more than 20 years experience in real estate, equities, funds and in the civil service.


Disclaimer: The views expressed here are solely those of the author and do not in any way represent the views of Henry Butcher Malaysia.

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