private property outlook (singapore)

2016 is looking like another quiet year for private properties, with buying and leasing activity yet to pick up steam. Status quo is likely to be maintained in terms of falling prices and rents, yet investors and homeowners alike are keeping a vigilant eye for sudden changes in the market such as further interest rate hikes and a faltering economy - both here and abroad.

Private Property: Grappling with the prospect of weakening performance

PropertyGuru Outlook Report 2016 | 3


As we look back on 2015, the non-landed private property market can, in short, be described as muted. Although there are signs that indicate interest from potential buyers, sentiments on the ground are still cautious in light of the implementation of loan curbs and market cooling measures. These buyers are highly selective in their choice of property, seeking out projects which are marketed within a price range palatable to their budget. On the other hand, there is a common perception that prices will continue to fall over the next few months, as seen in the last eight consecutive quarters. With the prospect of garnering a unit at a lower price, it is not surprising for buyers to hold back their purchases till a later date.

TRANSACTIONS PICKING UP STEAM AGAIN, NO END IN SIGHT FOR PRICE DROPS

It was just three months ago that the Singapore private property market was ranked as one of the worst performers in a report by real estate research firm Knight Frank. According to the study, Singapore recorded the second-biggest year-on-year drop in private property prices in Asia. Indeed, a quick glimpse at the data reveals that private property prices recorded a decline of 3.9 and 4.4 percent in Q2 and Q3 2015 respectively when compared with the same period a year earlier. China was the only Asian country to fare worse, with real estate values dropping an average of 5.7 percent over the same duration. In overall, the price correction for 2015 has been fairly moderate at 3.7 percent, a slight decrease from the 4 percent registered in 2014.

Price dips were encountered across the board in all three local market regions. Homes in the OCR (Outside of Central Region) took the biggest hit by falling 4.7 percent, a greater drop when compared with the 2 percent decrease in 2014. Interestingly, while prices of non-landed units in the CCR (Core Central Region) and RCR (Rest of Central Region) also trended downwards 2.8 and 4.6 percent respectively, it was not as severe on a

Source: URA, PropertyGuru Analytics


year-on-year basis where the former garnered a 4.2 percent decline while the latter garnered a 5.4 percent decrease.



Examining the number of transactions for 2015 illustrates that there might be a silver lining for the non-landed private property market. After months of consistently flat sales volumes, there was a revival in interest with the total transactions for the year closing at more than 15,000 units, 20 percent more than figures recorded in 2014. Much of the results can be attributed to brisk sales of new homes occurring during Q2 and Q3, accounting for at least two-thirds of entire transactions made in the year.

Developers concentrated their efforts in launching most of their offerings during the aforementioned mid-year period. In fact, developer launch volume almost doubled in Q2 and Q3 compared to Q1 with the release of 2,099 and 2,435 units respectively. However, despite the willingness of developers to introduce new inventory to spur consumer interest, momentum has definitely slowed down as evidenced by fewer launches in the market compared to previous years. 2015 saw a total of 7,462 new units, a far cry from the 15,885 launched at the peak of the property cycle in 2013 and significantly less than the 8,237 seen in 2014.

RENTAL PRICES TAKES A BEATING, TRANSACTIONS REMAIN FLAT

Like the sales market, weak demand has cast a shadow on residential leasing as well. 2015 saw rental transactions hold steady at 70,922 units, an increase of 13 percent from the year before. Historically, rental activity is highest in the RCR, with at least half of the total transactions occurring within this region. Popularity of the RCR can be attributed to the balance between affordability and accessibility – residential units which are sufficiently located around the city fringes compared to other options situated further away in the OCR, and at a lower cost vis-à-vis those in the CCR. That said, the number of rentals continued to climb 10 percent on a year-on-year basis with 37,865 deals signed.





Despite the optimism the slight bump in transaction figures brings, in reality, landlords are faced with the prospect of garnering lower rental yields as prices continue to taper further. Average rents in the OCR amount to $3,161 and $4,720 in the RCR, both displaying a steep year-on-year decline of 9.9 and 10.3 percent respectively. Rents also fell in the CCR to an average of $4,982, closing the year with a 7.5 percent correction from 2014. As a result, more landlords had no choice but resort to accepting rents at a lower market or become more willing to enter negotiations with potential tenants to adjust rents.

Yet, it is not just weakening rents that have impacted the fortunes of landlords. The large addition of newly completed homes to the existing number of residential units in Singapore contributed to the increasingly bearish rental market. It is becoming one that is characterised by more homes for lease than there are prospective tenants, opening up a wider selection of units to choose from within each district. Between the looming


oversupply and falling demand from expatriate tenants, landlords are left in a difficult bind, compromising and accomodating to demands simply to keep their units tenated. PREDICTIONS FOR 2016 1. Plateauing transactions coupled with gentler price corrections We foresee that transaction volumes in 2016 will average between 3,500 – 4,000 units in each quarter. In total, we can expect 14,000 – 16,000 units to be transacted in 2016, marginally above that recorded in 2015 by 3 – 5 percent. This assessment was made on the presumption that prices would have declined sufficiently by end-2015 to a level which is enticing enough for several property buyers to re-enter the market. As for prices, we expect them to continue to decline, albeit at a slower pace, with the market slated to bottom out at the end of 2016. Given




that prices have displayed a stable rate of decline per quarter of between 0.5 – 1.3 percent from 2013 to 2015, there is a strong possibility they will display a similar pattern of sustained downward moderation, if things will remain status quo. Prices are likely set to decline by another 2 - 4 percent by the end of 2016.

Echoing our sentiments is Jack Chua, CEO of ERA Realty Network, who believes that the slight uptick in number of transactions for non-landed private properties in 2015 will set precedence for trends this year, particularly in the secondary market.

“As can be seen in 2015, transaction volumes and prices have stabilised so we are expecting that activity will pick up again in 2016. However, it is in the resale market that will see most of the action taking place, with well above 6,000 units sold. On the other hand for new launches, I do not feel that volumes will increase a lot - number of sales is forecasted to be in the same region as that of 2015,” he mentioned.

2. Quieter primary market with fewer new launches

In view of the prevailing market conditions, property developers are well aware that affordability remains the chief concern for buyers simply means that it would not be meaningful to price newly launched units based on what developers think is profitable, but more on what is affordable to buyers within a specific locality that will drive sales.

Indeed, looking at the top sales performers in 2015, it is evident that buyers will respond favourably to projects only if they see value – determined by selling price and projected future capital appreciation - in investing in it for the medium or long term. Such is the case forthe successes behind the launches of North Park Residences, HighPark Residences and Botanique at Bartley, which offer a mix of goodlocation, price and growth potential. North Park Residences buckedthe trend by garnering brisk sales in the first few weeks of its launchbecause of its close proximity to the bus interchange and Yishun MRTStation, as well as future plans for integration in the Northpoint Citydevelopment. Furthermore, it is the availability of smaller units pricedbetween $1,044 and $1,572 per sq ft that enticed buyers affectedby the cooling measures to transact. Botanique at Bartley was alsodeemed a hit with 90 percent of units sold at launch because themajority of its units were priced between $1,049 and $1,394 per sq ft.Similarly, High Park Residences sold almost 70 percent of the 1,399units launched, at an average price below the S$1 million mark.

“For developers, it would be prudent to market their new projects at a more affordable quantum in order to attract a bigger pool of buyers. For mid-sized, mass market private homes located in the OCR, the sweet

WATCH VIDEO: Jack Chua, CEO of ERA Realty Network shares his thoughts on how the non-landed private property market has performed in 2015 and what property seekers can expect in 2016.

https://www.youtube.com/watch?v=DipmIV8vZfQ



spot price range will typically be between S$1.1 – 1.2 million. Projects beyond that will be a stretch for most looking to invest within this area.” mentioned Wong Xian Yang, Senior Manager – Research and Consultancy, OrangeTee.

projects, typically hover around 1,000 – 2,000 units per quarter. With sales of new private homes set to remain status quo, it is anticipated that developers will respond accordingly to demand and release only one or two major launches, with an average of 500 – 1200 units in total, monthly.

The problem will be exacerbated if we were to consider fears of the US Federal Reserve raising US interest rates further. When interest rates increased a quarter-percentage point in December 2015, the first in almost a decade, jitters were sent in the local economy. This is because the sibor rate, on which most mortgages interest rates are based on, closely follows the US federal reserve rate. And if pundits are right in pointing towards March as the next time for interest rates will rise again, homeowners could see increases to their monthly mortgage payments, reducing affordability further.

3. Rental Market Predicted to remain weak

With Asian markets faltering, especially in China, and the Singaporean economy projected to be less upbeat with a moderate growth rate of between 1 – 2.2 percent, it is highly probable that the leasing market will continue to perform weakly in 2016. As such, we predict that rental transactions will follow a similar trend to that seen in 2015, with average rents likely to correct downwards by another 3 – 5 percent for the year.

There are two reasons for these predictions: employment of overseas nationals is seeing downward growth and a slew of completed properties coming into the market in 2016. For the former, the foreign worker population is set to decrease even more as a result of the aforementioned bearish outlook in GDP for the year. As reported by the Ministry of Manpower (MOM), foreign workers only grew by a paltry 8,000 in H1 2015,

WATCH VIDEO: Wong Xian Yang, Senior Manager – Research and Consultancy, OrangeTee.speaks about how buyers and sellers have reacted to market sentiments as well as gives his opinion on the outlook for 2016.

Further elaborating on how pricing affects demand, he added, “City fringe homes should ideally be priced between $1.4 - $1.7 million for a 2 or 3 bedroom unit. Any project which surpasses this benchmark would not garner much interest in the slow market. At the end of the day, the biggest drawback for buyers committing on their interest, and choosing to sit on the side-lines, is very much dependant on the Total Debt Servicing Ratio (TDSR). As such, developers will have to work harder on their pricing strategies for new launches going into 2016.”

With the current market climate, some developers might be unwilling to launch new offerings. The data reveals that overall market sales, aside from certain months with a strong showing from one or two particular

https://www.youtube.com/watch?v=rWoZA-94LEs



a marked drop of 40 percent year-on-year and the lowest yet since the global financial crisis in 2008 – 2009. This will ultimately slow demand for leasing - with fewer expatriates coming to our shores, it will minimise the number of tenants searching for homes to rent. Moreover, within the existing pool of renters, there are also concerns of affordability of rents. The cost of providing certain benefits such as housing is the most expensive element of an expatriate’s pay package when he or she gets relocated to Singapore. The exorbitant cost might make some companies think twice about sending their staff to Singapore because of the weakening global economy. They many hence choose to revise housing allowances down or to offer localisation packages, which replaces the expat’s compensation package with a comparable one on par with local Singaporeans.

This will eventually affect how much expatriates can fork out for rents. According to a recent survey conducted by HSBC, an average expat at the managerial level draws roughly S$ 5,600 – 6,300 per month. Average residential rents in the RCR for 2015 was S$ 4,720, highlighting the disparity between incomes and the cost of housing, forcing expats to look for cheaper housing alternatives in the market. On the supply side of things, we expect rents in 2016 to be depressed further due to the rise in number of home completions. From URA figures, there were a total of 19,941 completions in 2014, followed by another 22,414 units in 2015. The number of private residences due for completion will peak in 2016 with another 23,000 units, which means the competition for tenants is set to intensify with more imbalance, between supply and demand.

Source: Department of Statistics

Forecast for 2016 for Private non-landed properties:

1. For sale market: n A 3-5 percent increase in transaction volume n Brought about by 2-4 percent decline in prices n Experts forecast increased activity in the secondary market, as number of new launches are expected to stay stagnant

2. For rental market: n Rental transaction volume to maintain n A 3-5 percent decline in rental prices n High incoming stock of completed homes in 2016, and a smaller housing budget for overseas nationals employed here on local terms

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private property outlook (singapore)

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