Residential property outlook for 2019

With 2018 drawing to a close, Cushman & Wakefield’s Christine Li gives a snapshot of how next year could pan out. The private housing market may not be as gloomy as widely perceived.

During the weekend of Nov 3 and 4, MCL Land’s preview of Parc Esta in Eunos drew more than 5,000 visitors. That weekend, two projects were launched and registered relatively healthy sales. Roxy Pacific Holdings sold 45 out of a total of 98 units at the freehold Arena Residences on Guillemard Lane. The average price of units sold was $1,750 to $1,850 psf. City Developments (CDL) sold 160 of the 240 units released at the 721-unit Whistler Grand on West Coast Vale, with units priced at an average of $1,380 psf.

“Demand is now driven largely by new launches — compared with a year ago, when resales were buoyant, owing partly to en bloc sales,” says Christine Li, senior director and head of research at Cushman & Wakefield (C&W). She was the keynote speaker for “Property Investment Outlook 2019” at the EdgeProp 360 event held on Nov 1 at the Marina One auditorium. According to C&W Research, in 3Q2017, resales accounted for 59% of transactions, with new-home sales making up just 40%. In 3Q2018, the tables have turned, with new-home sales accounting for 52% of total private housing transactions, and resales, 46%.

Dip in transaction volume, prices

Post-TDSR, the URA private property price index plateaued in 3Q2013, but after the cooling measures in July, prices still rose in 3Q2018, albeit only 0.5% q-o-q. Cumulatively, private property prices have risen 7.9% this year.

The worst hit by the latest round of cooling measures is the collective sale market, which Li says “has almost collapsed”. In 1Q2018, collective sales totalled $5.8 billion, slowing to $3.9 billion in 2Q2018. Then, in 3Q2018, only $0.35 billion worth of deals were done — less than 10% of the volume in 2Q2018.

Some developers have even pulled out of collective sale transactions, as the risks have mounted. For instance, TEE Land backed out of the purchase of Teck Guan Ville on East Coast Road; and Lafe Corp called off the purchase of Fairhaven condo on Sophia Road.

The additional buyer’s stamp duty (ABSD) for developers has doubled to 30%, of which 5% has to be paid upfront and is non-remittable. If they do not sell the units in a residential project within five years of launch, the penalty is 25% ABSD, up from 15% before.

Mixed performance across districts

Resales have contracted this year, as owner-occupiers may have turned cautious in the wake of the property cooling measures in July.

The impact on resale prices has been “mixed” across different districts, says Li. C&W looked at the impact that a slower collective sale market had on older projects at least 10 years old. This is because developments that are less than 10 years old require 90% of the owners by share value to agree to the collective sale. The prospect of these developments being successfully sold through collective sales is extremely low and their prices are unlikely to be influenced by the collective sale market (see Table 1).

Since the start of the year, there were speculative buyers who were willing to pay a premium for older units in prime Districts 9 and 10 in the hope of reaping a windfall from a collective sale. These two districts saw the highest number of successful collective sale transactions between 2016 and 1H2018. A total of 20 collective sales worth $5.8 billion was transacted in Districts 9 and 10, compared with $19.23 billion islandwide (see Table 2).

With chances of collective sales diminishing, median resale prices in Districts 9 and 10 had a pull-back of -6% each in 3Q2018 ver- sus 2Q2018 (see Table 1). “It could mean that, owing to a slowdown in collective sale activities, the euphoria has subsided and owners’ asking prices have met with a reality check,” says Li. “They now have to lower their asking prices to move the units.”

In Table 1, District 19 saw the highest quarterly increase of 19% in median price from 2Q2018 to 3Q2018. Li attributes it to the launch of three new projects in that district in June and July: the 613-unit Garden Residences on Serangoon North Avenue 1; the 1,052-unit Affinity at Serangoon; and the 1,427-unit Riverfront Residences on Hougang Avenue 7.

The new launches led to a widening price gap between new and old non-landed homes in District 19, which resulted in resale prices playing catch-up and median prices in 3Q2018 rising 19% q-o-q, the highest increase islandwide.

“It’s counter-intuitive,” says Li. “Most people would think that more supply will depress prices but, on the contrary, new supply is pushing up prices.” She sees buying opportunities in the resale market in areas in which there is a pipeline of new launches next year.

Leeway to move units

In 2016 and 2017, at least 67% of the projects launched sold more than one-third of their units within the first month (see Chart 1). “It gives developers plenty of leeway to adjust the prices of their projects, and they are not afraid of the five-year deadline because they can sell one-third of the units within a month,” says Li.

So far this year, eight out of 18 projects launched, or 42%, have sold more than one-third of the units within the first month. “Depending on the type of projects launched and the prices, the performance has been quite mixed,” says Li. “Those that are reasonably priced and well located did quite well.”

She points to projects such as the 1,206-unit JadeScape on Marymount Road; the 215-unit Mayfair Gardens on Rifle Range Road; the 805-unit Park Colonial in Woodleigh; and the 1,427-unit Riverfront Residences on Hougang Avenue 7. These projects have seen consistent sales after the cooling measures.

As such, Li does not expect new-home sales volume in 2018 to drop to the levels seen in 2015 and 2016 — of 7,576 units and 7,972 units respectively. “During those two years, people were worried about their jobs, and GDP growth was less than 2%,” she relates. “The outlook was a bit more pessimistic then.”

Last year, new-private-home sales totalled about 10,566 units. For the first nine months of 2018, a total of 6,956 new private homes were sold. Li reckons new-home sales this year could be 10% lower than last year, or about 9,400 units.

The combined stock of unsold private homes from development sites sold in government land sales and collective sales is 44,729 units today. Based on the most pessimistic scenario — of just 7,500 units sold a year — it would take 5.9 years to clear the unsold inventory. Assuming a 10% haircut from last year’s level, or 9,509 units, it would take 4.7 years to clear the stock. On the optimistic side, assuming the 10-year average of 12,159 units, it would take just 3.7 years (see Chart 2 and table).

With demand from HDB upgraders and en bloc millionaires (based on an estimated 6,700 households displaced by collective sales), Li believes the impact of the property cooling measures may not be as negative as expected.

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Residential property outlook for 2019

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