Singapore Real Estate Market Review March 2008

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Synopsis of the Market Report

 

The global situation is far from certain. As I was preparing this Quarter Review for publication, the Straits Times Index (STI)  – the barometer of Singapore’s stock market performance – dropped 80-over points in a day in what appeared to be the beginning of another massive correction phase.  Unless and until the US economy stops the blood-letting,  energy prices goes back to sanity level, and prices of foodstuff come off from the shelf and back to floor level again, property investors will continue to adopt the ‘safety first’ strategy with compulsion.

In this Quarter Review, I have identified the following topics for some detailed analysis and they include:

• The dismal showing of new launch/showroom sales – my advice to agents is to stay away from there unless you have five novels to finish from now to end of the year or you are bored with your marriage life. [ Statistics are at table 3 ]
  
   

• Landed property performance in the first quarter where Districts 10 and 15 were examined in detail in the following categories – house types [from bungalow to terrace house], transaction figures of each house type, price range and median prices. Landed property is definitely an area of potential and steady growth, even though superficially it appears to be dragged down by the same horror stories in the larger market. However, whether or not a landed property is sellable or not still depends on the same fundamental factors such as location, frontage, orientation etc. Agents are advised to stay close to basics real estate investment 101.        [ Statistics are at table 6 ]
  
   

• Collective sale performance is analysed with the perspective to forecast the supply side situation. As collective sale involves huge funds, the availability of war chest or sudden withdrawal of resources may serve as a telltale sign of things to come.                             [ Analysis on the Kuwaiti episode ]
  
   

• Foreign interest in Singapore property market remains comparatively strong though the absolute number of transactions had declined. [ Statistics are at table 14 ]
  
   

• Government land sale (GLS) programme appears to be on the wane as the number of bidders has significantly reduced for land parcels in outlaying areas and the bid prices tend to be more conservative in general in the first three months.
  

• The HDB market remains upbeat with sellers asking for ‘future prices’ that reflect optimism of the larger economy and Singapore’s success story. It appears that the heartlanders are the jolly lot and they are generally expecting greater things to endow Singapore. Interest on larger flats remains strong and it shows that confidence level is high among HDB upgraders.

• Last but not least, this Quarter Review contains a case study to ascertain the ‘Most Sellable Projects’ in the Central Core Region (CCR). It uncovers that many District 9 projects attracted only single digit transactions over the past six months. The surprised outcome of the case study is that the lists of statistics can now act as a ‘Sellability Checklist’ for agents who have listings in CCR. As such, more projects will be included in the next report. So, stay tuned.
   

Other things that may occupy real estate agents for some months would be the introduction of a new HDB Resale Checklist, purportedly to ensure the professional standards of real estate agents. The details are in Annex A. Another new initiative by HDB was the introduction of a higher-tier Single Housing Grant to reward filial piety. See details in Annex B. With HDB resale transactions gaining on, real estate agents specialising in HDB resale will have more busy days ahead.

 

(A) Global Situation and the Larger Market

 

(A.1) The worst is not over for US housing woes

 

Industry data released on 6 March 2008 showed that January’s pending home sales in the United States were at the second-lowest reading since 2001.

The National Association of Realtors (NAR) said its seasonally adjusted index of pending sales for existing homes held at 85.9, the same reading as December and just short of a revised record low of 85.8 in August 2007, when the sub-prime mortgage crisis first reared its ugly head.

Meanwhile, the Mortgage Bankers Association said that US home foreclosures and the rate of homes entering the foreclosure process rose to record highs in the fourth quarter led by increasing personal insolvencies. According to NAR’s delinquency and foreclosure survey, the rate of failing loans swelled across most mortgage types but was led by a growing wave of sub-prime borrowers unable to make payments.

 

(A.2) Home ownership rates fell as buyers are waiting for the crisis to end

 

Equity Residential, one of the largest US apartment landlords noticed that more people are opting to remain in rental apartments while they wait out the current housing slump. In fact, fewer tenants are moving out of its apartments. The departure rate was 63.3%, lower than the 64.9% recorded in 2006.

And population projections by the National Association of Realtors (NAR) suggest hundreds of thousands of young Americans are sitting out the housing market entirely - neither buying nor renting.

Recent reports show that the average price of an existing single-family home in US metropolitan areas fell 6% in the fourth quarter, while foreclosure rates in the top 100 metropolitan areas soared 78% last year. Indeed, home ownership rates have fallen to 67.8% of households at the end of last year from 69.2% in 2004.

 

(A.3) US commercial real estate value will also be affected

 

JP Morgan analysts expect the US commercial real estate values to fall by 20% from the peak of 2007 price height and losses to reach about US$120 billion, or 4% (as compared to the 15% in housing loans) of the US$3.2 trillion outstanding commercial real estate loans.

Commercial Mortgage Backed Securities (CMBS) would account for about US$30 billion of the losses and collateralised debt obligations (CDOs) would account for about US$40 billion of the losses.

CMBS, including CDOs, accounted for 23.6% of lending at the end of the third quarter of 2007. Problems in the CMBS market will become apparent between 2010 and 2012 when many five-year mortgages mature.

This would lead the commercial property market into a more gradual decline than the housing market, which has been slammed by losses related to sub-prime mortgages. Those losses are expected to reach US$200 billion, or 15% of the US$1.25 trillion of outstanding loans.

 

Like they said during the Vietnam War: “the situation will get worse before it gets better”. The haemorrhage suffered by major global financial institutions has not stopped and the regular blood transfusion is costing the whole world dearly. (The fact that Government of Singapore Investment Corporation GIC is currently in talk with UBS for GIC to inject more funds to help the ailing global financier speaks volume for the crisis portion) The rapid devaluation of the US dollars had driven prices of all major commodities skyward and the troubles are getting closer to home each day with the regional countries surrounding Singapore being clobbered with soaring food prices. The original crisis in the West might take on a new dimension in Asia, that is, security troubles resulting from acute food shortage. There is no guarantee that the downward spiral would not exacerbate the ongoing problems and plunge the whole world into a sudden and sharp recession. I better be wrong!

 

(B) Performance of Private Property Segment

 

(B.1) Private home prices up but at slower rate and pathetic volume

 

The URA has announced the flash estimate of the real estate market performance in the first quarter of 2008. The advanced price index for private homes in Singapore rose a meek 4.2% over the preceding quarter – 2.6% lower than the 6.8% quarter-on-quarter rise registered in the final quarter of 2007. In other words, price growth has slowed down for the first quarter of 2008. As for the three individual geographical regions, the price growth was as follows:

 

Table [1] – Price growth in the first quarter of 2008 – by regions

 

Regions	Price growth of non-landed private homes Q-on-Q
Core Central Region (CCR)	4.4% (previous quarter growth 7.5%)
Rest of Central Region (RCR)	3.9% (previous quarter growth 7.7%)
Outside Central Region (OCR)	4.8% (previous quarter growth 7.0%)

About 64,900 private residential units are in the pipeline, of which about 56,100 new private housing units are expected to be completed between 2008 and 2011. Out of the 56,100 new homes, about 38,300 units or 59% have not been sold by developers yet. This may impact the price if demand remains weak over the next few months.

 

(B.2) Performance of primary home sale in February and March 2008

 

Only 188 new home units were sold in February 2008 and 319 units in March 2008. The total new home sale figure for the first quarter was 791 units – lower than the 894 units sold in the fourth quarter of 1997 when the Asian currency crisis reached its height.  In other words, the first quarter primary home sale figure had plunged to a crisis proportion. Here are the details:

 

Table [2] – New homes launched and Sold in the February 2008 – by regions

 

Regions	No. of units sold in February	No. of units launched in February 2008
Core Central Region (CCR)	27	32
Rest of Central Region (RCR)	47	107
Outside Central Region (OCR)	45	179
Total	119 (37.42%)	318

Another 69 new home units were sold in other projects launched earlier, boosting the total number of new transactions to 188. Below shows the detailed breakdown of the units sold in March 2008.

 

Table [2A] – New homes launched and Sold in the March 2008 – by regions

 

Regions	No. of units sold in March	No. of units launched in March 2008
Core Central Region (CCR)	13	108
Rest of Central Region (RCR)	57	136
Outside Central Region (OCR)	73	394
Total	143 (22.41%)	635

Besides those units sold at the new projects launched in March 2008, 176 other new units were sold in projects that had been launched earlier, bringing the total new home sale in March 2008 to 319.

• High unsold inventory

While the aggregate sale figure in March 2008 may be higher at 319 (143 units from projects launched in March and 176 units from projects launched earlier), it is far cry from the unsold inventory. For example, in February 2008, 119 units were sold but 199 remained unsold after being launched; and in March 2008, 143 units were sold but 492 units remained unsold after being launched that month. 

• Longer marketing time

As the number of unsold units mounts, the salespersons at the show-flats have to endure longer waiting time; while buyers take their time to ‘pick and choose’ the best ‘discount package’ that the developers are showering them with.

 

Table [3] Performance of Primary Projects launched in February 2008 in Central Core Region (CCR)

 

Project Name	Total Units	Units Launch so far	Units Launch in Feb	Units Sold in Feb	Median Price (psf)	Lowest Price (psf)	Highest Price (psf)
Cliveden at Grange	110	100	1	1	3,914	3,914	3,914
Martin Place Residences	302	50	20	11	1,723	1,641	1,997
Mount Sophia Suites	50	16	1	5	1,709	1,647	1,726
Scotts Square	338	228	2	2	3,649	3,641	3,656
The Ritz-Carlton Residences	58	6	1	1	4,140	4,140	4,140
Wilkie Studio	40	25	6	2	1,724	1,723	1,726
Mount Sophia Suites	50	16	1	5	1,709	1,647	1,726
Total			32	27

 

Table [3A] Performance of Primary Projects launched in March 2008 in Central Core Region (CCR)

 

Project Name	Total Units	Units Launch so far	Units Launch in March	Units Sold in March	Median Price (psf)	Lowest Price (psf)	Highest Price (psf)
8 Rodyk	50	48	50	2	1,800	1,750	1,850
Mount Sophia Suites	50	1	4	3	1,621	1,617	1,784
Scotts Square	338	0	5	5	3,868	3,621	4,612
Shelford Suites	77	13	15	2	1,887	1,869	1,905
The Tresor	62	33	34	1	1,646	1,646	1,646
Total			108	13

Note:  Out of the 108 units launched, only 13 units or 12.03% were sold.

 

Table [4] Performance of Primary Projects launched in February 2008 Rest of Core Region (RCR)

 

Project Name	Total Units	Units Launch so far	Units Launch in Feb	Units Sold in Feb	Median Price (psf)	Lowest Price (psf)	Highest Price (psf)
Aalto	196	196	35	2	2,619	2,336	2,902
Cosmo	45	45	45	41	1,098	1,048	1,152
The Adara	16	16	16	2	1,106	1,038	1,173
Tropics @ Haigsville	11	11	11	2	874	858	890
Total			107	47

 

Table [4A] Performance of Primary Projects launched in March 2008 Rest of Core Region (RCR)

 

Project Name	Total Units	Units Launch so far	Units Launch in March	Units Sold in March	Median Price (psf)	Lowest Price (psf)	Highest Price (psf)
St Michael Regency	49	49	49	0	-	-	-
Suites @ Owen	20	0	20	20	1,052	900	1,243
Sunflower Regency	14	13	14	1	537	537	537
The Verve	106	17	53	36	1,187	969	1,298
Total			136	57

Note: out of the 136 new units launched in RCR in March 2008, only 57 or 41.91% were sold. However, 31 new homes were sold at projects which were launched earlier, bringing the total sale of new homes at RCR to 88.

 

Table [5] Performance of Primary Projects launched in February 2008 Outside Core Region (OCR)

 

Project Name	Total Units	Units Launch so far	Units Launch in Feb	Units Sold in Feb	Median Price (psf)	Lowest Price (psf)	Highest Price (psf)
Blu Coral	79	45	45	9	872	846	905
East Coast Residences	59	34	31	2	1,214	1,185	1,244
Harmony @ 1A	12	12	12	5	902	858	1,059
Inova 100	9	9	9	1	890	890	890
Residential apartments	35	35	35	2	825	805	844
The Azzuro	15	15	15	0	-	-	-
Waterfront Waves	405	180	32	26	808	694	920
Total			179	45

Note: Only 45 units or 25% of the 179 units launched found buyers.

 

Table [5A] Performance of Primary Projects launched in March 2008 Outside Core Region (OCR)

 

Project Name	Total Units	Units Launch so far	Units Launch in March	Units Sold in March	Median Price (psf)	Lowest Price (psf)	Highest Price (psf)
Blu Coral	79	20	11	28	802	520	909
D'Casita	39	32	39	7	712	711	862
Lange 28	5	4	5	1	611	611	611
The Ambrosia	39	14	39	25	915	800	1,071
The Florentine	34	32	34	2	648	648	648
The Quartz	625	276	265	9	742	485	796
The Top Residence	13	0	1	1	582	582	582
Total			394	73

Though the number of new home units sold in OCR in March 2008 was the highest, the number of units launched was much higher at 394 units. In terms of percentage, the sale only 18.52% (lower than the 25% in the previous month) of the total units launched in March was sold.

 

(B.3) Residential rental growth to ease later part of the year

 

The constraint in demand-supply of residential properties may push residential rents up by 5% to 15% this year until higher supply of new units materialises from late 2008 onwards. This is against a backdrop of a robust rental growth of 40% year-on-year in 2007.

In other words, while demand to rent residential properties may continue to be strong, the rent amount may not increase by much due to supply of ready units.

Resistance from tenants and companies to higher rents has been evident recently with landlords taking longer time to find tenants. Moreover, housing allowances for many foreign tenants have been capped and as such the frenzy seen last year in the rental market is unlikely to repeat itself.

About 8,400 new private homes will be completed this year. But the number will expand dramatically in the three years from 2009 to 2011, with an estimated 16,000 to 17,000 units completed each year.

 

(B.4) Landed property transactions went down but prices stay firm

 

As of last year, there were only 650 units of new landed homes released into the primary market. This is the prime reason why despite all the quietness in the private resale market, landed homes are still selling well and sale prices generally held firm.

Another important reason is because most landed home buyers are owner-occupiers. Below shows the detail transaction records of landed property in the first quarter of the year.

There were 474 landed property transactions between Jan 2008 and March 2008. Out of which 57 were bungalows; 121 semi-detached houses; and 296 Terrace houses.

 

Table [6] Performance of Secondary Landed home sale in 1st Quarter of 2008

 

Month	Detached	Semi-detached	Terrace houses	Total Sale
January	30	57	126	213
February	17	39	92	148
March	10	25	78	113
Q1 2008 Total	57	121	296	474
Q4 2007 Total	115	210	589	914

 

Source of data: URA website

 

Compared with the 4th quarter of 2007, there was a 48% drop in the landed property transaction in the first quarter of 2008 over the last quarter. Buyer’s sentiments have definitely been dented by the lingering global financial market worries. However, a closer look at the transacted prices and median prices show that the underlying demands are still strong, pending a clearer picture of the market situation.

 

Analysis of Detached houses transactions in Q1

 

Table [7] Across the whole island – Detached house sale price analysis

 

Q1	Detached houses Sold	Price			Unit price (psf)
		Lowest	Highest	Median	Lowest	Highest	Median
January	30	$850k	$13.25m	$3.81m	$141	$1,193	$576
February	17	$2.11m