New Reporter
10-07-23, 10:13
Will fresh supply of private homes ease property prices in Singapore?
Singapore has increased private housing supply to the highest in a decade. While this should reduce home prices, the country's property market sometimes contradicts economic theory, say Tan Tee Khoon and Lee Nai Jia of PropertyGuru.
Tan Tee Khoon
Lee Nai Jia
07 Jul 2023
SINGAPORE: News that Singapore’s private home prices have fallen for the first time in three years seem to indicate that the property market is finally stabilising.
Home prices in Singapore have long been on an upward trajectory because of a supply crunch in private residential property. The disruption caused by COVID-19 on the construction sector led to fewer homes getting completed and the government holding on releasing land for development. The perceived lack of new homes, coupled with strong demand, pushed housing prices to record highs.
To ensure a healthy and sustainable property market, the government stepped in with cooling measures to control demand from foreign buyers and restrict purchases of multiple homes.
The government also boosted the supply of private housing to cater to the robust buying trend. In fact, the supply of private housing in the Confirmed List of the Government Land Sales (GLS) programme increased by 26 per cent in the second half of 2023 compared to the first half. The total supply for 2023 is around 9,250 units, marking the highest figure in a decade.
https://www.youtube.com/watch?v=2e6Lq0MAluo
An intriguing shift is also happening, with more homes being added to the Confirmed List due to high demand. Between 2018 to 2021, there were more homes on the Reserve List than on the Confirmed List, reflecting challenging economic conditions and market trends.
https://i.imgur.com/OIdzBpd.png
IMPACT OF INCREASED SUPPLY ON PROSPECTIVE BUYERS
Will the increased supply ease home prices and demand? The answer to the question is not so simple as there is more to this than meets the eye.
While announcing more supply seems like it should balance out demand, the time lag between the supply announcement and the actual launch - typically 12 to 15 months - douses the intended impact.
Additionally, most property seekers can have an urgent need for accommodation, especially if they are spurred on or impacted by changes in their personal or financial circumstances. They often prefer to buy a known quantity immediately rather than wait.
Despite the risks of higher prices and costs, this readiness to buy is often influenced by recent sales trends and the fear that prices will only go up the longer they wait.
Even if new launches debut and do not sell out, prices may not drop immediately. Unexpected events, like the COVID-19 pandemic, can shift things dramatically, as we've seen with the increased demand for larger homes.
https://i.imgur.com/OHqABrF.png
The reality of the property market can sometimes contradict what economic theories predict. For instance, while new launches should theoretically reduce demand and bring down resale prices, this does not always happen.
Case in point: When Lentor Modern was launched in September 2022, leasehold condominium prices in the development’s vicinity did not dip as expected. This is despite a round of cooling measures being introduced. There is an inexplicable hype of sorts with new launches that appear to have a life of its own.
ARE PRIME SITES PRIME FOR SALE?
In 2023, two prime locations stand out in the GLS programme: The Marina Gardens Crescent site in the first half of the year, and the Orchard Boulevard and Zion Road sites in the latter half.
The most recent high-profile deal was the Marina View site, clinched by IOI Properties from the Reserve List at a land rate of around S$1,379 (US$1,020) per square foot per plot ratio.
Casting our minds back to 2018, the last time an Orchard Road site changed hands was when a collaboration of SC Global Developments, Far East Consortium International and New World Development won the bid. The land rate then was about S$2,377 per square foot per plot ratio.
Based on lodged caveats, a unit at this prime location was sold at a whopping S$3,830 per square foot in June 2022.
The Orchard Boulevard site, located right next to the Orchard Boulevard MRT station on the Thomson-East Coast Line, is highly attractive. But the escalated additional buyer's stamp duties for foreign buyers could dampen enthusiasm.
However, we have observed that most buyers do not seem unduly concerned about tenure. We expect these prime locations to continue drawing interest, just like popular 99-year leasehold sites such as Wallich Residence and OUE Twin Peaks. Increasingly, the focus seems to be on the design proposition and location attributes of projects.
APPEAL TO HDB UPGRADERS
Several sites located in the Outside Central Region (OCR) are catching the attention of developers, largely due to their appeal to HDB upgraders.
Locations like the Upper Thomson Road parcels offer an enticing option for those looking to escape the city's hustle and bustle while enjoying good accessibility. These suburban sites are typically larger, with each site listed in the 2H2023 GLS programme offering more than 500 units.
With larger sites in the GLS programme, buyers have more options in the market. The larger sites also mean that the rental market is likely to moderate in the medium term when the units are completed, as a portion of these private residential units are likely to be leased out.
The upcoming executive condominium (EC) sites will be music to the ears of property upgraders and first-time homebuyers who are not eligible to purchase Build-to-Order homes due to income ceiling restrictions.
Considering that ECs are often more affordably priced than private condominiums and eligible buyers have access to Central Provident Fund housing grants, we expect to see steady and resilient demand for these properties.
MORE CHOICES FOR BUYERS BUT MORE CONSIDERATIONS FOR DEVELOPERS
Given that half of the GLS Confirmed List supply is in the OCR, this should cater to the upgrader demand for the HDB flat lessees which will reach their minimum occupation period in the next 24 to 36 months.
That said, the announcement of the new GLS programme sites may not have an immediate impact on home prices because the new sites would take a while to be launched in the market. Property seekers are unlikely to see owners and developers lowering prices.
Developers will need to consider a variety of factors when deciding how much to bid for land. While previous bids can give some indication, the rapidly changing market landscape means developers need to reassess their future pricing predictions and corresponding risks. This can make land acquisition a big, bold bet.
Dr Tan Tee Khoon is Country Manager of Singapore at PropertyGuru, and Dr Lee Nai Jia is Head of Real Estate Intelligence, Data and Software Solutions at PropertyGuru Group.
https://www.channelnewsasia.com/commentary/private-property-gls-price-new-launch-rent-condo-hdb-upgrade-3610176
Singapore has increased private housing supply to the highest in a decade. While this should reduce home prices, the country's property market sometimes contradicts economic theory, say Tan Tee Khoon and Lee Nai Jia of PropertyGuru.
Tan Tee Khoon
Lee Nai Jia
07 Jul 2023
SINGAPORE: News that Singapore’s private home prices have fallen for the first time in three years seem to indicate that the property market is finally stabilising.
Home prices in Singapore have long been on an upward trajectory because of a supply crunch in private residential property. The disruption caused by COVID-19 on the construction sector led to fewer homes getting completed and the government holding on releasing land for development. The perceived lack of new homes, coupled with strong demand, pushed housing prices to record highs.
To ensure a healthy and sustainable property market, the government stepped in with cooling measures to control demand from foreign buyers and restrict purchases of multiple homes.
The government also boosted the supply of private housing to cater to the robust buying trend. In fact, the supply of private housing in the Confirmed List of the Government Land Sales (GLS) programme increased by 26 per cent in the second half of 2023 compared to the first half. The total supply for 2023 is around 9,250 units, marking the highest figure in a decade.
https://www.youtube.com/watch?v=2e6Lq0MAluo
An intriguing shift is also happening, with more homes being added to the Confirmed List due to high demand. Between 2018 to 2021, there were more homes on the Reserve List than on the Confirmed List, reflecting challenging economic conditions and market trends.
https://i.imgur.com/OIdzBpd.png
IMPACT OF INCREASED SUPPLY ON PROSPECTIVE BUYERS
Will the increased supply ease home prices and demand? The answer to the question is not so simple as there is more to this than meets the eye.
While announcing more supply seems like it should balance out demand, the time lag between the supply announcement and the actual launch - typically 12 to 15 months - douses the intended impact.
Additionally, most property seekers can have an urgent need for accommodation, especially if they are spurred on or impacted by changes in their personal or financial circumstances. They often prefer to buy a known quantity immediately rather than wait.
Despite the risks of higher prices and costs, this readiness to buy is often influenced by recent sales trends and the fear that prices will only go up the longer they wait.
Even if new launches debut and do not sell out, prices may not drop immediately. Unexpected events, like the COVID-19 pandemic, can shift things dramatically, as we've seen with the increased demand for larger homes.
https://i.imgur.com/OHqABrF.png
The reality of the property market can sometimes contradict what economic theories predict. For instance, while new launches should theoretically reduce demand and bring down resale prices, this does not always happen.
Case in point: When Lentor Modern was launched in September 2022, leasehold condominium prices in the development’s vicinity did not dip as expected. This is despite a round of cooling measures being introduced. There is an inexplicable hype of sorts with new launches that appear to have a life of its own.
ARE PRIME SITES PRIME FOR SALE?
In 2023, two prime locations stand out in the GLS programme: The Marina Gardens Crescent site in the first half of the year, and the Orchard Boulevard and Zion Road sites in the latter half.
The most recent high-profile deal was the Marina View site, clinched by IOI Properties from the Reserve List at a land rate of around S$1,379 (US$1,020) per square foot per plot ratio.
Casting our minds back to 2018, the last time an Orchard Road site changed hands was when a collaboration of SC Global Developments, Far East Consortium International and New World Development won the bid. The land rate then was about S$2,377 per square foot per plot ratio.
Based on lodged caveats, a unit at this prime location was sold at a whopping S$3,830 per square foot in June 2022.
The Orchard Boulevard site, located right next to the Orchard Boulevard MRT station on the Thomson-East Coast Line, is highly attractive. But the escalated additional buyer's stamp duties for foreign buyers could dampen enthusiasm.
However, we have observed that most buyers do not seem unduly concerned about tenure. We expect these prime locations to continue drawing interest, just like popular 99-year leasehold sites such as Wallich Residence and OUE Twin Peaks. Increasingly, the focus seems to be on the design proposition and location attributes of projects.
APPEAL TO HDB UPGRADERS
Several sites located in the Outside Central Region (OCR) are catching the attention of developers, largely due to their appeal to HDB upgraders.
Locations like the Upper Thomson Road parcels offer an enticing option for those looking to escape the city's hustle and bustle while enjoying good accessibility. These suburban sites are typically larger, with each site listed in the 2H2023 GLS programme offering more than 500 units.
With larger sites in the GLS programme, buyers have more options in the market. The larger sites also mean that the rental market is likely to moderate in the medium term when the units are completed, as a portion of these private residential units are likely to be leased out.
The upcoming executive condominium (EC) sites will be music to the ears of property upgraders and first-time homebuyers who are not eligible to purchase Build-to-Order homes due to income ceiling restrictions.
Considering that ECs are often more affordably priced than private condominiums and eligible buyers have access to Central Provident Fund housing grants, we expect to see steady and resilient demand for these properties.
MORE CHOICES FOR BUYERS BUT MORE CONSIDERATIONS FOR DEVELOPERS
Given that half of the GLS Confirmed List supply is in the OCR, this should cater to the upgrader demand for the HDB flat lessees which will reach their minimum occupation period in the next 24 to 36 months.
That said, the announcement of the new GLS programme sites may not have an immediate impact on home prices because the new sites would take a while to be launched in the market. Property seekers are unlikely to see owners and developers lowering prices.
Developers will need to consider a variety of factors when deciding how much to bid for land. While previous bids can give some indication, the rapidly changing market landscape means developers need to reassess their future pricing predictions and corresponding risks. This can make land acquisition a big, bold bet.
Dr Tan Tee Khoon is Country Manager of Singapore at PropertyGuru, and Dr Lee Nai Jia is Head of Real Estate Intelligence, Data and Software Solutions at PropertyGuru Group.
https://www.channelnewsasia.com/commentary/private-property-gls-price-new-launch-rent-condo-hdb-upgrade-3610176