OPINION: Potential impact of property cooling measures on selected projects

Edgeprop Singapore

January 24, 2022

SINGAPORE (EDGEPROP) - In December 2021, the government introduced a set of measures to cool the buoyant residential property market. Although the measures are expected to inject more caution and act as a dampener to the fast-rising prices, a sharp price correction is unlikely, given that market fundamentals such as tight supply and low interest rates remain unchanged. Moreover, the market reacted similarly in the previous rounds of cooling measures. For example, the pace of price increases eased after the additional buyer’s stamp duty (ABSD) was raised in July 2018, but the upward trajectory for prices continued unabated on the back of continued demand for residential properties.

Housing developers will feel the squeeze on their profitability because they have to ramp up marketing efforts and resources, especially for projects that tend to attract foreign buyers. As such, new land sales could face higher price resistance and developers may even walk away from recently concluded deals. For example, Shun Tak Holdings chose not to complete the en-bloc purchase of High Point.

The increased caution from developers will also have an impact on the 1H2022 Government Land Sales (GLS). The residential land parcels on the confirmed list are expected to see fewer bidders and lower bid prices, with the possible exception of the Dunman Road site due to its excellent locational attributes and easy access to Dakota MRT Station. The healthy response for the GLS site along Jalan Tembusu reflects the continued bullish sentiments for the property market. There were eight bidders for the site with City Developments submitting the top bid of $768 million or $1,302 psf per plot ratio (ppr).

In addition, the government reduced the total debt servicing ratio (TDSR) for new housing loans from 60% to 55%. The loan-to-value (LTV) limit for new housing loans granted by HDB was also decreased from 90% to 85%. However, LTV remains at 75% for housing loans granted by financial institutions. Although the tightened TDSR will ensure that home buyers do not borrow beyond their means, it would also mean smaller loans available to them to finance their purchases.

Who will bear the biggest brunt?

Based on data from URA, foreign buyers bought 20% to 25% of all transacted condominium units from 2012 to 2019; dropping to just below 20% in 2020 and 2021 due to the pandemic. This translates to about 3,500 to 5,600 units per year by foreigners.

In terms of sheer transaction volume, the Rest of Central Region (RCR) proved to be most popular with foreign buyers over the years, while the Outside Central Region (OCR) takes second place. But further examination paints a very different picture. An analysis of the units purchased by foreign buyers as a percentage of the total number of units sold in that region during the year would clearly indicate that the Core Central Region (CCR) consistently takes the top spot. As OCR covers a much larger area than the other two regions, the number of units launched in that region will naturally be more than the other two regions. Hence, it is not surprisingly that OCR takes the second spot for foreign buyers when merely analysing transaction volume. However, the prestigious location, connectivity, limited supply and higher price level of CCR and RCR projects will always attract a significant percentage of foreign buyers.

From a developer’s perspective, newly launched or about-to-be-launched developments in CCR and RCR may face the largest challenges. Using EdgeProp research tools, we have compiled a list of projects in CCR that are still under construction, are popular with foreign buyers and have a current take-up rate of below 30%. Their centralised location, while attractive to foreigner buyers, may put them at a disadvantage as foreigners rethink their buying intention after the latest round of measures. Additionally, their low take-up rate means that developers will need to be extra creative in selling this large volume of units.

The good news is developments with strong take-up rates of over 70% should face fewer difficulties as they would have sold the majority of their units. Their challenge is to find innovative ways to attract first-time home buyers or upgraders for the remaining units. Such projects may face fewer difficulties if they are in OCR as foreign buyers are not their primary target market.

What can developers do?

The main mitigating factor for developers is the low supply of new condominium units and limited number of launches in 2022. Unsold inventory is also at a record low of about 14,000 units. Some developers may push back their launches so that they can re-strategise their pricing and marketing campaigns, thus exacerbating the tight supply situation.

As with any property, location is vital. For new sites, developers should consider sites with unique locational attributes and superior transport connectivity. They may also want to consider a joint venture with another developer to share development risk. Most importantly, developers must do their sums carefully to avoid submitting an overly high bid-price for the land.

Developers with developments that are still under planning should work with their architects and designers to create a niche product that speaks to their target audience. The recent pandemic has seen many turn to nature and gardening for their mental well-being. Developers should take note of this trend and include more lush landscaping or even community gardens in their project. Bearing in mind the demand for more space due to working-from-home arrangements, developers could consider having more larger units in their projects and fewer studios or one-bedroom units. Adding power track systems and energy-saving features could also give the development a boost.

For projects under construction, there is little that developers can change in terms of layout or design. However, they can do some benchmarking and make some minor price adjustments to match competing nearby projects. With their budget slashed by the new measures, potential buyers or investors will definitely do more comparison shopping to get the best value for their money. Developers should also ramp up marketing efforts to trumpet the unique qualities of their project that differentiates it from its neighbours.

What can buyers and investors do?

The recent cooling measures may be beneficial to first-time home buyers who are Singaporeans or PRs looking for deals. In addition, the current low interest rate environment is also favourable for the property market. The high prices for resale HDB flats also provide aspiring upgraders more capital to purchase a condominium unit.

Foreign investors should not discount Singapore’s residential properties based solely on the new cooling measures. In today’s uncertain and ever-changing world, Singapore still provides a safe investment haven for savvy investors. Additionally, the quality and design of Singapore’s luxurious condominiums can easily stand toe-to-toe with the world’s best.

New projects worth a second look

There are a few new projects that deserve a second look from potential buyers. The first three projects below are in an established residential area and thus offer first-time buyers and their family plenty of amenities and public transport options. The projects are also selling at average prices of below $1,800 psf, which have proven to be affordable to many buyers based on the robust sales for each project.

Read more at: https://www.edgeprop.sg/property-new...ected-projects