Busting the myth of a hot property market
Business Times: Fri, Aug 03
[SINGAPORE] When you read about units being snapped up at a record pace, you might think that the property market is sizzling.
But buried beneath the headline numbers, two distinct trends appear to puncture this myth.
Not only is the average unit size sold by developers much smaller now, compared to the pre-global crisis peak year of 2007, but islandwide the average price per square foot is also much lower. That's because more units are being sold in the suburbs instead of the Core Central Region (CCR), where properties are costlier.
In fact, the state of the property market looks very different when viewed from the perspective of total square footage and total dollar quantum of apartments/condos sold by developers, rather than the number of units.
Although developers sold more non-landed private housing units last year and in 2012 (on an annualised basis) than in 2007, the total area of these units and their dollar value were lower than 2007's levels, according to a study by Savills Singapore.
That's because developers have taken to minting smaller units to keep lump sum unit prices affordable to buyers. Also, transactions in CCR, home to high-end properties, have shrunk.
"Contrary to conventional belief or market perception that the residential market is in a red-hot state, the numbers belie the fact that we are nowhere near or back to the levels in the go-go year of 2007 in terms of the total square footage and dollar value sold," said Savills Singapore research head Alan Cheong.
Savills' analysis, which was based on URA Realis caveats data, looked at primary market transactions (that is, developer sales) of non-landed private homes. Across Singapore, developers sold 13,910 units last year, up 19.4 per cent from 2007's figure of 11,647 units. The 2007 figure is also lower than the 2012 annualised figure of 15,824 units (based on caveats for 7,912 units lodged in the first half of this year).
However, the total area of 13.43 million sq ft in the non-landed units developers sold last year was about 19.2 per cent lower than the 16.62 million sq ft they sold in 2007.
Mr Cheong attributes the trend to developers building smaller homes post-GFC across all locations. The average size of private apartments and condos sold by developers in CCR - which includes the traditional prime districts 9, 10 and 11, the financial district and Sentosa Cove - has declined by 30.2 per cent from 1,639 sq ft in 2007 to 1,144 sq ft last year. It dipped further to 1,052 sq ft in H1 2012.
In the Rest of Central Region (RCR), the average size of units sold has shrunk almost a third from 1,338 sq ft in 2007 to 898 sq ft last year before contracting further to 831 sq ft in H1 2012.
In the Outside Central Region (OCR) - home to mass-market condos in suburban locations - the figure slipped 25.3 per cent from 1,292 sq ft in 2007 to 965 sq ft last year. In H1 2012, the figure was 876 sq ft.
Taken individually, the average psf primary market prices achieved in each of the three regions last year and in H1 2012 surpassed those in 2007. But the total islandwide dollar value of the units sold by developers in 2011 and 2012 (annualised), at $16.9 billion and $16.3 billion respectively, are shy of 2007's $22.7 billion.
This is because average home sizes have shrunk in all regions and volumes have dropped dramatically in CCR, where properties are pricier, while the action has swung to the suburbs.
Back in 2007, when foreign buyers were making a beeline for upmarket homes, drawn by the Remaking Singapore story and a strategy to draw high net worth individuals to the island, CCR and OCR each accounted for roughly 35 per cent of the number of non-landed private homes sold by developers.
It's a different picture now, with the exodus of buyers from CCR to OCR.
Only around 10 per cent (1,417 units) of the 13,910 units developers sold last year were in CCR; the share for H1 2012 was 4.3 per cent (337 out of 7,912 units sold).
On the other hand, OCR's share was a formidable 63.9 per cent in 2011 and 75 per cent in H1 2012, translating to primary market sale volumes of 8,884 units and 5,936 units respectively in the region.
"However, the volume increase in OCR for 2011 and H1 2012 could not offset 2007's concentration of transaction value in CCR, resulting in the drop in total sales value of units sold by developers," said Mr Cheong.
Commenting on the shrinking average home size, Roxy-Pacific Holdings executive chairman Teo Hong Lim observes this is due not just to a proliferation of shoebox units but a general contraction of unit size across the board - two, three, four bedders - as developers try to keep lump sum investment sums affordable to buyers.
He also highlights that since the 2009 rule change to include bay windows and planter boxes as part of gross floor area, the saleable area of an apartment has shrunk by about 5-6 per cent even if it has a similar internal layout as before.
Savills' Mr Cheong notes that with the drop in developers' total housing sales revenue compared with 2007 and with more players entering the fray, competition has intensified for land purchases, especially at state tenders. "There are now more fish swimming in a smaller pond."
Agreeing, DTZ's Southeast Asia chief operating officer Ong Choon Fah says: "Selling prices have gone up but land and construction costs have also increased. So developers have to look for ways to better manage costs and development risk."
These include pushing out launches as soon as possible and partnering construction companies. "They have to look for more efficient ways to develop and design their projects."
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Originally Posted by focus
I am not chartist.. anyhow draw one. So if you look at it, the retracement to the 61.8% level will equate to roughly a 20% Drop in prices.
