Moderate price fall for private homes in 2Q2016

By Lin Zhiqin and Tan Chee Yuen

/ The Edge Property |

July 22, 2016 11:00 AM SGT

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Private home prices fell 0.4% q-o-q in 2Q2016, compared with 0.7% in 1Q2016, based on data released by the URA today. Prices have fallen 9% from the peak in 3Q2013 to 2Q2016, over 11 consecutive quarters of decline.

According to CBRE Head of research for Singapore and South East Asia Desmond Sim, “The Q2 URA statistics indicate continued pressure across all sectors of residential, office and retail, against the backdrop of a sustained period of uncertainty in the market and weak global sentiment, exacerbated by existing government policies.”

Prices of private non-landed homes slipped 0.1% in 2Q2016, compared to the 0.6% fall in 1Q2016. While home prices in the Outside Central Region (OCR) fell 0.5% in 2Q2016, following the 1.3% decline in 1Q2016, prices picked up in the Core Central Region (CCR) and Rest of Central Region (RCR) segments. In the CCR, prices rose 0.3% in both 1Q2016 and 2Q2016, while RCR prices rose 0.2% in 2Q2016 after remaining unchanged in 1Q2016.

Edmund Tie & Company Head of research Lee Nai Jia says the rise in CCR prices "is likely to be due to sales from projects that offered deferred payment schemes. Units sold under such schemes are usually priced slightly higher."

Colliers International Head of research and advisory Anthea To says, "developments located at prime districts or with strong locational attributes will be favoured by buyers and will enjoy relatively healthy absorption. Meanwhile, developers who wish to move their units quickly will have to evaluate their pricing strategy to ensure that it meets the price expectations of potential buyers."

Cushman & Wakefield Director and head of research Christine Li comments, "On the back of an improved market sentiment, total transaction volume surged 60% to 4,550 units in 2Q2016, the highest level since 2Q2013 when the Total Debt Servicing Ratio (TDSR) framework was put in place. The increase in the transaction volume is also across all market segments, with the rebound in prime (CCR) resale being particularly strong at 84% quarter-on-quarter and 34% year-on-year, supported by the creative marketing of OUE Twin Peaks and Ardmore Three."

The number of resale transactions rose 60% q-o-q and 17% y-o-y to 2,140 in 2Q2016, from 1,340 in 1Q2016 and 1,827 in 2Q2015.

Developers sold 2,256 private residential units (excluding ECs) in 2Q2016, compared to the 1,419 units in 1Q2016 and 2,116 units in 2Q2015.

The decline in private home rents also moderated to 0.6% in 2Q2016, compared with the 1.3% fall in 1Q2016. Rents for private non-landed homes in the CCR bucked the trend with a 0.1% increase in 2Q2016, after a 1.7% decline in 1Q2016. Rents in the RCR and OCR fell 0.6% and 1.2% in 2Q2016 respectively, reflecting a similar pace rate of decline as in 1Q2016.

Looking ahead, Li says, "An immediate Fed rate hike which is no longer on the cards could spur interest in private properties as upgraders and investors take advantage of the lower mortgage rates. In addition, Singapore’s prime luxury property will be the asset choices of the rich should the wealthy around the world takes a flight-to-safety route to ride out the volatility post-Brexit. As long as the macroeconomic environment remains stable for the rest of the year, the residential market will continue to demonstrate resilience in the months to come."

JLL National director of research & consultancy Ong Teck Hui comments, “With improvements in transaction volume and prices of different market segments showing a mix of mild increases or decreases generally, the private home sales market appears headed towards a bottoming in the next few quarters, provided sentiments remain positive and barring major external shocks. However buyers are still price sensitive and cautious so sellers have to be realistic about pricing for deals to be closed. They have to be mindful that while demand outlook has improved, the amount of unsold stock is still substantial and buyers still have many options to consider."

"Given that the longer and lower interest rate environment is likely to persist, the risk of further housing price correction is decreasing. Year-to-date, the private residential price index (PPI) only retreated by 1.1%, demonstrating strong resilience. Price decline from the peak in 3Q2013 is currently 9.4%. Barring unforeseen circumstances, we expect Singapore's residential market to decline by up to 3% for the whole of 2016," Li concludes.

Property Price Index of private residential properties

Source: URA

HDB resale price unchanged despite a spike in transaction volume

HDB resale prices remained unchanged in 2Q2016 from 1Q2016 despite a 31% increase in the number of resale transactions from 4,449 in 1Q2016 to 5,838 in 2Q2016.

"The HDB resale market is at its equilibrium, with mild fluctuations in prices," says Lee.

Agreeing, SLP International Head of research and consultancy Nicholas Mak says, "In a further sign of stability in the HDB resale market, the HDB resale price index for 2Q 2016 remained the same as the previous quarter. The price index slipped by a minimal 0.1% in the first six months of 2016 and decreased by 0.2% year-on-year in 2Q2016."

According to Mak, the increase in transactions "is mainly due to seasonal factor. Based on available historical data, the HDB resale transactions increased in the second quarter in the 15 out of the past 16 years. Another factor that contributed to the increase in HDB resale transactions in 2016 is that as more private and public housing projects are completed this year, some of the HDB upgraders who bought these new homes are compelled to sell their HDB flats in order to take possession and finance their new homes."

"The stability in the HDB resale price index can be deemed as an indication that the market cooling measures is bearing fruits. Hence, the government does not appear to feel the urgency to remove any of the property curbs in the short term. For the whole of 2016, the HDB resale price index is expected to remain stable, varying between minus 1% to 1% yoy increase. The HDB resale transactions for the whole of 2016 could range between 18,600 and 19,800 flats. In 2015, a total of 19,306 HDB resale flats exchanged hands," adds Mak.

In the HDB rental market, the number of applications approved for subletting of HDB flats went up by 5.2%, from 11,239 cases in 1Q2016 to 11,824 cases in 2Q2016. A total of 52,171 HDB flats were sublet as at June 30, up 2.2% from 51,052 units in 1Q2016.

HDB had offered 13,110 flats in 1H2016, comprising 7,940 Build-To-Order flats and 5,170 balance flats. In August 2016, HDB will offer about 4,800 BTO flats in Hougang, Sembawang, Tampines and Yishun. A total of 18,000 BTO flats will be launched this year, compared to the 15,000 flats launched last year.

--thisisapagebreak

Steeper price and rental decline for commercial space

Prices of office space fell by 1.5% q-o-q in 2Q2016, compared to the 0.3% slip in 1Q2016. Rents fell 3.5%, compared with the 2.1% decline in 1Q2016. The island-wide vacancy rate of office space improved marginally from 9.2% in 1Q2016 to 9.1% in 2Q2016. Pipeline supply of office space stands at 11 million sq ft GFA.

“Vacancy rates in the office market have edged off slightly on the back of limited new supply but the next six to nine months will prove challenging as more supply is completed. Despite current muted demand, pre-commitment levels remain healthy, with flight to quality the main driver,” Sim notes.

JLL Head of research Tay Huey Ying notes, “JLL’s research also showed a similar trend of improving vacancy rates. Specifically, vacancy rate in the Marina Bay micromarket tightened to 5.4% in 2Q2016 from 5.7 percent in 1Q2016, driven by flight to quality amid rental corrections. A select group of occupiers are taking advantage of the tenant-favourable environment and relocate to efficient space that could generate long-term rental savings. The pick-up in leasing momentum has seen rental decline for office spaces in Marina Bay moderating significantly to 2.4% q-o-q in 2Q2016 compared to the 8.2% q-o-q decline recorded in 1Q2016. This moderation is a hopeful sign that rents at Marina Bay are nearing support level.”

Nonetheless, not all occupiers are jumping at the opportunity to upgrade, Tay observes, “URA’s statistics showed that in 2Q2016, offices in the Fringe area recorded a higher absorption of 20,000 sq m compared to the 7,000 sq m managed in the Downtown Core on the back of the sharp 3.8% q-o-q fall in rents in the Fringe. This indicates that given the mounting uncertainties in the macro environment, businesses are generally still cost-sensitive and are not all jumping at the opportunity to upgrade to a more central location despite the availability of supply at competitive rents. Against this backdrop, and amid the large impending supply expected to come on stream, office rents are forecast to continue to trend down over the next six to 12 months."

Prices of retail space fell 3.1% in 2Q2016, compared with the 1.9% decline in 1Q2016. Rents fell 3.9%, compared to the 1.9% in 1Q2016. The island-wide vacancy rate of retail space rose from 7.3% in 1Q2016 to 7.8% in 2Q2016.

“Retail was impacted the most, with the largest decline in rentals recorded since Q2 2011, the sixth consecutive quarter of decline. Vacancy continued to increase as challenges remain. Pressure will mount on the back of supply coming in the next 12 to 24 months,” Sim adds.

"The headwinds facing the retail sector is expected to intensify as Brexit could further dampen the already fragile consumer sentiment and affect retail spending. The depreciation of the pound could divert travellers, including Singapore’s key inbound tourists from China, India, Indonesia and Malaysia, to the UK for sightseeing and shopping, instead of traveling to Asia, including Singapore. Additionally, Singapore might receive fewer British travellers, who currently contribute about 3% of the total inbound tourists, as it will be dearer to travel to Singapore as a result of the weaker pound," says Tay.

“A Brexit-induced tourism lull is expected to exacerbate the already-challenged retail trade and the impact is expected to be greatest on the performance of malls in the Orchard submarket, which relies heavily on tourist spending,” adds Tay.

To says, "We believe that landlords will stay focused on asset enhancement and mall repositioning initiatives to stay competitive in the face of falling rents. By moving away from “cookie cutter” tenant mixes and investing in platforms to enhance the overall shopping experience, landlords should be able to strengthen the positioning of their malls, attract more visitors and generate more sales for the tenants."

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