Will rising home prices raise the risk of fresh cooling measures?

Nov 30, 2021

WITH the private residential market poised to end the year on a high note, does this once more heighten the risk of policy measures?

Even the perceived possibility of cooling measures could serve as a near-term headwind for the share price of property developers with exposure to the private residential market, one analyst has flagged.

Earlier this month, the 696-unit CanningHill Piers saw brisk sales over its launch weekend, with 77 per cent - or 538 units - scooped up by buyers at an average selling price of about S$3,000 per square foot (psf), raking in total sales of some S$1.18 billion.

Among the units sold was the project's only super penthouse, an 8,956 square foot apartment on the 48th floor, which transacted for S$48 million or S$5,360 psf. The 99-year leasehold project, part of an integrated development located at the site of the former Liang Court, is being jointly developed by City Developments Limited (CDL) and CapitaLand Development.

In a research note, Citi analyst Brandon Lee highlighted that while CDL has underperformed developers, share price upside is likely to be contained by residential policy risk and the patchy recovery in the hospitality sector.

CanningHill Piers' pricing, along with two upcoming high-end launches in this quarter, is seen as a catalyst for possibly pushing the Q4 2021 price index upwards. Luxury launches include the freehold 39-unit Cairnhill 16 (the former Cairnhill Heights) in District 9 and the freehold 230-unit project Perfect 10 along Bukit Timah Road in District 10.

In a separate note this week, Lee wrote: "The combination of unsold pipeline at a record low, scarcity of major launches in 2022 and continued increase in land prices - given developers' hunger for land - makes us expect residential prices will rise at a high single-digit pace in 2021 and 2022, which will raise the (perceived) possibility of cooling measures and place a share price overhang on resi-focused developers in the near term."

RHB property analyst Vijay Natarajan doesn't rule out the possibility of cooling measures, but reckons that they could be calibrated or appear in a different form, such as wealth taxes.

Higher interest rates - should they kick in from 2022 - could also slow down the gravy train.

After all, trotting out punitive policy measures raises the risk of derailing the economy's recovery, especially at a point where higher than expected revenues - from stamp duties, among other sources - are helping to fund support measures for businesses following a slew of safe-distancing measures.

The government could pull other levers to cool the market such as increasing the supply available under state tenders, although this route has its own constraints, he pointed out.

For starters, it will take time for supply to come on-stream since land parcels are sold in a staggared manner, while pandemic-linked construction delays make it tough to ramp up supply, given the manpower crunch and escalating prices of raw materials.

With listed entities such as CDL and UOL both holding a sizeable landbank in Singapore, Natarajan said: "If the cooling measures come, these two stocks will get hit, but from an earnings impact perspective, I think it is manageable."

Exceeding expectations

Throughout the pandemic, the performance of the private residential market has exceeded expectations, and concerns of a major slump were unfounded, to put it politely.

In the first 10 months of this year, 10,918 new homes were moved by developers, with Cushman & Wakefield projecting that new home sales could reach up to 13,000 units for 2021 as a whole - a high not seen since 14,948 homes were sold back in 2013. This easily pips the 9,982 homes sold in 2020.

There is a cocktail of factors for the sanguine performance so far - low interest rates, liquidity, buyers scouting for larger homes and demand from singles, as well as from HDB upgraders, against the backdrop of an active HDB resale market.

Singapore's transition from pandemic to endemic living, along with the easing of travel restrictions for prospective foreign buyers, could also keep the momentum in the housing market going. Of course, it remains to be seen if the emergence of the Omicron variant will hamper that shift to endemic living.

Still, one thing to watch is the en bloc market, analysts say.

As unsold inventory continues to be whittled down, developers will likely have to jostle to acquire land in state tenders, with some already turning to the en bloc market.

A heated en bloc market would translate to higher land acquisition costs and, by extension, higher prices for buyers down the line.

This could tip the scales where policy risk is concerned, as seen during the last en bloc cycle in 2018.