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Recovery in private home sales seen spilling over to new year

23 May, 2017

A mild recovery in private residential transactions could spill over into 2017 - though this comes, ironically, against a backdrop of falling rents and rising vacancies. This paradox arises mainly from pent-up demand from buyers who have delayed their purchasing decision since the cooling measures of 2013, property consultants said.

But the state of the economy and its impact on the labour market is a wild card. The uncertainty has clouded the reading on price directions for next year; analysts expect private home prices to slip further by as much as 3 per cent or to rise by as much as 2 per cent through 2017.

One of them projects a moderation in price decline next year, followed by stable or mildly-rising prices in the later part of the year. We are seeing a higher volume of transactions because many buyers feel that the residential market is getting closer to its bottom and prices have corrected to more acceptable levels, he said.

But 2017's expected higher interest rates will put a lid on home demand and prices. 2016's full-year new-home sales are expected to be between 7,500 and 8,000 units (excluding executive condominiums or ECs), followed by 8,000 to 9,000 units in 2017. The resale market will likely register similar numbers. Another consultant said that although rents and yields are expected to come off further in 2017, capital values will probably be rather impervious to such developments.

Firstly, patience is wearing thin for buyers waiting for prices to drop more sharply since the total debt servicing ratio took effect in June 2013. Secondly, recent defaults in the corporate bond markets have made accredited investors wary about the safety of their invested capital. So even if real-estate yields are low and could fall lower, having certainty of ownership is far superior to holding financial instruments.

In 12 straight quarters since the peak of Q3 2013, prices of private homes have slumped 10.8 per cent; rents have sunk 10.7 per cent, said the Urban Redevelopment Authority (URA). Sales momentum held up during the third quarter, led by resales. A total of 11,993 private residential units (excluding ECs) were sold in the first nine months, 9.8 per cent more than in the same period in 2015. The 3,265 EC units sold in the first nine months this year already exceed the 2,550 EC units sold for the whole of last year.

The government would probably pay heed to the rising sales volume, given that there must be enough supply to meet increased buying demand for prices to stabilise in the short to medium term. An analyst said that it should probably look beyond the current oversupply and high vacancy of completed units, which is cyclical, and consider a potential market recovery that could be round the corner.

But most consultants flagged the short-term oversupply of completed units in the whole residential market, with the suburbs or Outside Central Region (OCR) bearing the brunt of it. The Monetary Authority of Singapore, in its latest Financial Stability Review, presented a sobering outlook for the property market, and advised property investors to be prudent.

The OCR may face a relative oversupply of small-format homes. Despite a 2012 guideline aimed at restricting the number of shoebox units outside the Central Area, developers are still able to incorporate many one-bedroom units in their projects by optimising the unit-type mix.

With substantial home completions from government land sales sites of 2012-2013 in the OCR, there could be a temporary indigestion in the mass-market segment. Next year may bring rental softness to Rest of Central Region (RCR) as new completed homes come onstream.

URA data had showed a vacancy rate of 8.7 per cent among private homes (excluding ECs) at the end of Q3, from 8.9 per cent three months earlier, due to a smaller increase in completed stock during the quarter; the vacancy rate for ECs stood at 10.8 per cent at the end of Q3, down from 13.8 per cent three months earlier.

Private residential home vacancy may exceed 10 per cent next year, which could weigh further on rents; the vacancy rate for ECs may be between 9 and 12 per cent as HDB upgraders divest their HDB properties in a possibly-stabilising HDB resale market.

Rents could ease further by 5-10 per cent next year. The slower economy implies consolidation of some sectors and expatriate workers being redeployed elsewhere.

Adapted from: The Business Times, 9 December 2016