Private home resale prices up, but 'not a sign of market rise'

[reporter2]

http://www.straitstimes.com/premium/top-the-news/story/private-home-resale-prices-not-sign-market-rise-20140211

Private home resale prices up, but 'not a sign of market rise'

Published on Feb 11, 2014

By Cheryl Ong


RESALE prices of private homes edged up last month despite weaker buying sentiment resulting from loan curbs and other policies, new data has showed.

But market watchers said the 2.3 per cent rise in resale prices last month from December should not be mistaken for a sign of a strengthening market.

Figures based on a small number of sales were not a reliable overall indicator, they said.

The figures are from the Singapore Real Estate Exchange (SRX) resale price index, which tracks non-landed private homes in the secondary market.

A total of 310 homes changed hands last month - tumbling 70 per cent from the 1,039 units sold in January last year, and down by 9.1 per cent from December.

"The 2.3 per cent increase cannot be read as an uptick in buyers' interest in resale properties," said R'ST Research director Ong Kah Seng.

He said buying uncertainty, caused by property cooling measures and loan curbs imposed last year, had led to a handful of sales in recent times.

Monthly average prices based on a limited number of sales were "highly volatile", he added.

Mr Eugene Lim, key executive officer of property agency ERA Realty, said units sold at higher prices could have skewed the index.

"We should have a clearer picture of where the market is heading when we look at transactions in March to May, as these are the months that traditionally have a higher transaction volume."

Suburban units led the rise in resale prices last month, climbing 2.4 per cent.

Prices of homes in the city centre also rose by 2.1 per cent, while units in city fringes bucked the trend with a 0.9 per cent slide.

Mr Ong said suburban resale prices are unlikely to keep rising in the next few months, as buyers shy away from prices that seem to be at an all-time high.

Sellers faced with falling demand will need to adjust their expectations, leading to a muted resale market this year, experts added.

Mr Lim said he expects resale prices to ease by about 6 per cent to 10 per cent this year, because of the sizeable number of new homes coming on stream.

Last month, Urban Redevelopment Authority data showed that an estimated 19,907 units will come on stream this year.

Meanwhile, overall rents rose by 1.1 per cent, the first increase in six months.

The number of rental deals signed also rose by 8.1 per cent last month from December, to hit 2,348 contracts.

City fringe rentals led the gain, climbing 3.6 per cent. In the city centre, rents inched up 0.4 per cent, while rents in the suburbs rose by 0.2 per cent.

But the supply of new homes will put a lid on the rise, Mr Lim said. Landlords with units farther from MRT stations will have to be "more realistic" with asking rents.

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[Amber Woods]

The GuruView:

To fully understand this apparent contradiction between the facts and the earlier headlines you need to recognise a few things about how a general property market index works.

Sales volumes in the secondary condominium market have dropped dramatically over the last 12 months, and while this gives an indication of where prices are likely to be heading in the future the most important point to note is where the current resale transactions are happening. This affects the general market index, which is used as a proxy for prices rising or falling. The problem is that a change in the types and localities of the properties being measured changes the index – and this may or may not reflect actual price changes.

Consider the following scenario.

In the outer regions of Singapore the prices per sqft are low, and in the core areas they are much higher. Therefore, if sales volumes have fallen, as a proportion of the total sales, in the Outside Central Region (OCR) and, at the same time, have proportionally increased in the Central Region (CR), then the overall market prices per sqft – as measured by the index - will have increased.

Note that this can happen despite the fact that resale condominiums in any given region may, in fact, have gone down in price. Put simply, an ‘apples with apples’ valuation is the only way to get an accurate picture of exactly what is happening to prices.

Similarly, the reverse could also be true. It’s entirely possible that the above scenario hasn’t happened – and rather prices have indeed been rising. The point is that without the ‘apples with apples’ analysis no intelligent conclusion can be made from looking simply at any aggregate index data. From the data provided we can only conclude that prices may have gone up, unless of course they went down – which is not helpful.

A simple way to see how this may happen is the following scenario.

Developers in the OCR may have discounted hard in the primary new homes market, meaning that potential buyers will shift their focus from the secondary market and into the new homes sector. However, new condo supply is more limited in the CR and therefore there is less capacity for people to switch between sectors. So, proportionately more demand remains in the secondary market. That is, you get more high per sqft priced units and fewer low priced psf units being measured by the index, and so the index will rise regardless of whether the actual units themselves rose or fell in price. This is a compositional effect that affects indexes – and so caution needs to be exercised when drawing conclusions from them, particularly over short time periods.

The key point is that very little can be understood from just the headline data on the secondary market. Potential property buyers and investors need to do their research, including talking to the agents on the ground, to see how prices are actually performing in the areas that interested them.

[indomie]

Looks like the media is campaigning for the removal of CMs. Statistical data that showing any price rise will be profoundly refuted.

[triproton]

The GuruView:

To fully understand this apparent contradiction between the facts and the earlier headlines you need to recognise a few things about how a general property market index works.

Sales volumes in the secondary condominium market have dropped dramatically over the last 12 months, and while this gives an indication of where prices are likely to be heading in the future the most important point to note is where the current resale transactions are happening. This affects the general market index, which is used as a proxy for prices rising or falling. The problem is that a change in the types and localities of the properties being measured changes the index – and this may or may not reflect actual price changes.

Consider the following scenario.

In the outer regions of Singapore the prices per sqft are low, and in the core areas they are much higher. Therefore, if sales volumes have fallen, as a proportion of the total sales, in the Outside Central Region (OCR) and, at the same time, have proportionally increased in the Central Region (CR), then the overall market prices per sqft – as measured by the index - will have increased.

Note that this can happen despite the fact that resale condominiums in any given region may, in fact, have gone down in price. Put simply, an ‘apples with apples’ valuation is the only way to get an accurate picture of exactly what is happening to prices.

Similarly, the reverse could also be true. It’s entirely possible that the above scenario hasn’t happened – and rather prices have indeed been rising. The point is that without the ‘apples with apples’ analysis no intelligent conclusion can be made from looking simply at any aggregate index data. From the data provided we can only conclude that prices may have gone up, unless of course they went down – which is not helpful.

A simple way to see how this may happen is the following scenario.

Developers in the OCR may have discounted hard in the primary new homes market, meaning that potential buyers will shift their focus from the secondary market and into the new homes sector. However, new condo supply is more limited in the CR and therefore there is less capacity for people to switch between sectors. So, proportionately more demand remains in the secondary market. That is, you get more high per sqft priced units and fewer low priced psf units being measured by the index, and so the index will rise regardless of whether the actual units themselves rose or fell in price. This is a compositional effect that affects indexes – and so caution needs to be exercised when drawing conclusions from them, particularly over short time periods.

The key point is that very little can be understood from just the headline data on the secondary market. Potential property buyers and investors need to do their research, including talking to the agents on the ground, to see how prices are actually performing in the areas that interested them.


One of the best posts so far! Your logic is sound and does explain the apparent contradiction.

[windcar]

We do not need more units to be build, as the weakened rental market has already signaled that the market is no longer in shortage of housing units. When there is a huge supply of new condos TOP in these 3 years, any further supply increase will tip off the delicate balance already achieved between the supply and demand.

NO CM should be removed within the next few years.