Singapore property market: developers standing firm for now in supply glut

Wed, Mar 13, 2019


THE effects of last July's property cooling measures, as well as an abundance of choices of new private residential launches for home buyers, have started to become apparent.

Sales have been generally subdued for new launches in the past two weekends. For instance, at The Florence Residences in Hougang, where sales began on March 2, close to 60 units were reported to have been sold in the first weekend out of the 200 units released in the 1,410-unit condo. The average selling price was nearly S$1,400 per square foot. In contrast, at Affinity at Serangoon, in a slightly better location, 112 units were sold during its first weekend of sales in June last year - despite the project being launched at a much higher average price of S$1,575 psf. A nearby rival project, The Garden Residences - with an even higher average price of S$1,660 psf and launched at the same time in June 2018 - also found buyers for more than 60 units in its first weekend of sales. All three projects are on 99-year leasehold sites.

This is a time of plenty in terms of supply of property launches.

Following their aggressive land-buying spree in 2017 and the first half of 2018, residential developers now seem to be keen to launch projects on these sites as quickly as they can, to clinch buyers amid a ballooning pipeline of private homes. By some estimates, more than 40 projects totalling some 18,000 units could be launch-ready this year, though some could flow into next year.

Homebuyers know they can take their time to make a decision, given the plethora of launches scheduled this year and next.

Developers, while mindful of the supply glut, may not be able to price their projects competitively, even as they probably have had to launch at prices lower than originally envisaged. Most have paid high land prices resulting in high breakeven costs. But even those with projects on sites bought earlier or drawn from their historical landbank predating recent rules relating to sales deadlines, seem to be adopting an aggressive pricing strategy. Based on prices at projects launched in the past two weekends, developers' profit margins still range in the double-digit, note analysts. Developers are not too motivated to trim prices. For those who bought sites between 2016 and 2018, the earliest they will hit the five-year sales deadline will be 2021. Hence slow take-up rates at launches can be expected to continue in coming months.

Meanwhile commission rates for property agents are going up. For new launches, it is becoming increasingly common for developers to offer commissions of 2 to 3 per cent - compared with about 1.5 per cent or less early last year - to incentivise agents to direct buyers to their projects. At projects that are already on the market, such service fees can be even higher to stave off competition from new launches. That should be good news for agents, assuming they do not share a portion of the commission with buyers as an inducement to engage the agent's services.

All said, the current state of play in the market sees buyers faced with a surfeit of choice but little room for bargain hunting, as developers stand pat on pricing for now.