BT Property 2023 (September Issue)

[New Reporter]

A shifting landscape

Michelle Low

Sep 28, 2023

MARKETS coming off highs are always tricky to negotiate for buyers and sellers, landlords and tenants. In this edition of The Business Times’ Property Supplement, we weigh how various forces and shifting sands are pulling on market dynamics, and highlight hotspots existing and emerging.

Much has been made of how foreign buying has evaporated from Singapore’s prime residential market. Yet most of the high-end sector is held up by local buyers. Is there room at the top for gains down the road? Residential rentals are expected to ease after the surges of the past two years. Tenants could soon see some relief, but as demand decants, certain segments will hold on to strength for landlords.

Landed housing showed hefty gains in the recent past which are now moderating. Aside from the oft-cited rise in new wealth and overall higher land prices, there is one other key factor behind the rise and rise of house values. Find out what’s fuelled the market.

In mass market condos, higher prices, duties and lending limits have eroded buying power. How developers - and the government - shape pricing and supply will be key to market stability. The public-private middle ground where executive condominiums sit is already emerging as the in-demand market to home in on. And a new public housing framework could prompt changes in buying behaviour.

By 2030, Singapore will be a “super-aged” society, with 1 in 4 residents aged 65 and over. This means big opportunities have opened up in an untapped area of affluent seniors looking to age with dignity.

Family offices are setting up shop in Singapore in record numbers. In what sectors, and where, are these high-net-worth investors looking to park their wealth? The sharply higher stamp duties on residential purchases have also led Singapore investors to look outside for returns. We find out which overseas markets are catching attention.

Is the office sector - very much tied to economic growth - turning a corner? Strata-titled office space, meanwhile, is having a moment. We look at prospects for this niche segment. And find out why industrial property is a bright spot in Singapore’s real estate landscape.

https://www.businesstimes.com.sg/pro...ting-landscape

[New Reporter]

A brave new world for HDB buyers and sellers

With firm demand pitted against moves to tame resale prices, those in the HDB market will have to manage their expectations

Eugene Lim

Sep 28, 2023

AFTER the series of cooling measures that started in late 2021, and with the ramp-up in Build-To-Order (BTO) flat supply, the Housing and Development Board (HDB) resale market seemingly took a turn. HDB resale price growth adopted a more measured cadence, and resale transactions declined in the first half of 2023.

For 16 consecutive quarters, the HDB resale price index scaled upwards, reaching a peak of 176.2 in the second quarter of 2023. Price growth moderated to 1.5 per cent quarter on quarter in Q2 2023, down from a recent peak of 3.4 per cent quarter-on-quarter growth in Q4 2021.

Transaction volume, excluding one and two-room flats, declined by 2.5 per cent year on year to 12,620 units in the first half of 2023.



In recent years, the count of million-dollar flat transactions has emerged as another metric used to benchmark the state of the HDB resale market. Between 2017 and 2020, an average of 66 million-dollar flats were sold per year. In 2021, 259 million-dollar flats were sold; another 369 such transactions were recorded in 2022.

In the first eight months of 2023, 294 million-dollar flats have changed hands. Over the longer term, the rising number of million-dollar flat deals could raise the market’s expectations, even though they make up a small minority of transactions.

All HDB flats are equal, but some are more equal than others. Well-located resale flats remain highly sought after and typically command a premium. It is thus unsurprising that a majority of the million-dollar transactions are in mature estates. The median price of a four-room flat in a mature estate exceeds S$700,000, while that of a similar flat in a non-mature estate is just below S$500,000.

The HDB has committed to launch up to 100,000 BTO flats between 2021 and 2025, to meet current demand. Yet, BTO launches in attractive locations continued to be highly oversubscribed.

For instance, during the February 2023 BTO exercise, there were 3.5 first-time applicants vying for each four-room flat in Kallang Whampoa. Similarly, during the May 2023 BTO exercise, there were 14 first-time applicants for each five-room flat in Serangoon. The common market perception is that first owners of well-located BTO flats can stand to make substantial upside gains upon selling their homes after fulfilling the minimum occupation period (MOP).

Overall, about 40 per cent of BTO applicants eventually gave up their chance to book a flat due to various reasons. Many turned to the HDB resale market instead, adding to resale demand.

Reclassification for an equitable market

During the recent National Day Rally, Prime Minister Lee Hsien Loong announced a new framework for HDB flats, with the reclassification of BTO flats into Standard, Plus and Prime models.

The Singapore government has repeatedly echoed the need for sustainable conditions in the HDB market. Hence, the overhaul will better reflect HDB’s policy plans. Resale curbs for Plus and Prime homes aim to bridge the widening HDB price gap islandwide.

Barring any updates to current policy, one can expect to see the effects of the BTO flat reclassification on the resale market in the next decade. The new framework will encourage prospective buyers to be more thoughtful about their housing needs.

As the new classification will only take effect from the second half of 2024, and given that HDB flats take four to five years to be built, the Plus and Prime types will only enter the resale market some 14 to 15 years later.

Existing resale flat owners are not affected by this new classification, and demand for resale flats, particularly in centrally located estates, remains resilient.

The shorter five-year MOP, which also applies to the new Standard flats, is technically more attractive for HDB flat owners who seek flexibility and runway to upgrade to executive condominiums (ECs) or private property in the future.

Plus, Prime, and the property ladder

For sellers of the new Plus and Prime flats, the stringent resale conditions may limit potential upside, making it more difficult for them to climb the property ladder eventually.

First, the 10-year MOP shortens the runway for any eventual bank loan for the buyer to upgrade to an EC or private condo. Take a 30-year-old couple, who books a Plus or Prime flat. They will take possession of the flat at age 35. The couple will be 45 years old before they can resell the flat to upgrade. The bank loan tenure for their next property purchase will then be trimmed to 20 years, compared to 25 years for a 30-year-old couple who books a Standard flat with a five-year MOP. The shorter the loan tenure, the higher the monthly loan instalment. Therefore, the older the buyers are when they buy their Plus or Prime flats, the more disadvantaged they may be, should they plan to upgrade after the 10-year MOP.

Second, the household income ceiling cap of S$14,000 for the resale buyer of a Plus or Prime flat, together with a mortgage servicing ratio (MSR) of 30 per cent on all loans to buy HDB flats, essentially limits the maximum loan quantum of the eventual resale buyer.

Based on this, the maximum resale price that the first resale buyer could afford to pay would be S$1.11 million (if they were to take a loan from HDB) and S$1.06 million (if they were to take a bank loan). This then essentially caps the eventual resale prices of these Plus and Prime flats, whereas there is no income ceiling cap for resale buyers of Standard flats.

As such, Standard flats may be a better alternative for homebuyers whose plans and needs may change in time. For instance, parenthood often leads couples to look for a bigger flat after the MOP.

Standard flats also help keep first property purchases at a palatable price point, and allow for an earlier exit strategy compared to Plus and Prime flats.

A longer 10-year MOP, the clawback of HDB subsidies, and the imposition of an income ceiling on resale buyers will help negate the “lottery effect” of flats in coveted locations. The stricter resale restrictions will also deter speculation, and may moderate resale price growth over the longer term.

Spillover demand

Existing resale flats are not subject to these restrictions, and may continue to see resilient demand from homebuyers. However, resale prices of these flats are unlikely to skyrocket with their shorter lease balance. Owners aged 55 or above and seeking to downsize from private property still have the option to buy four-room or smaller flats without the 15-month wait-out period. Households that are nearing the income ceiling of S$14,000 may consider purchasing an EC or private property instead.

But HDB homebuyers are subject to an MSR capped at 30 per cent of the borrowers’ monthly income. For private property buyers, the current Total Debt Servicing Ratio is 55 per cent of the borrowers’ monthly income.

Policy has also been tweaked to cater to demand from singles. Eligible singles can now apply for two-room Flexi BTO flats in all areas. Singles who have pressing housing needs or prefer a three-room to five-room HDB flat are not restricted from buying from the resale market.

The government has undertaken calibrated measures to prevent the HDB resale market from overheating. This aligns with the HDB’s mandate to keep the public housing resale market accessible to Singaporeans, and help them achieve their lifelong aspiration of owning a property. With demand staying stable, HDB resale prices may see more measured growth going forward.

Eugene Lim is key executive officer at ERA Realty Network

[New Reporter]

Behind the rise of landed property values

Demand for more living space has resulted in larger built-up areas, fuelling prices of new-build and rebuilt landed properties

Han Huan Mei and Nancy Tey

Sep 28, 2023

TAKE a walk in any landed estate at Holland Road, Dunearn Road, Serangoon Gardens or Mountbatten Road, and you will see at least one or two newer houses that stick out, looming one or two storeys above the conventional double-storey landed homes on the same street.

These huge new houses (“two and a half storeys plus attic”) usually come with a spacious living area that encompasses dining space, large kitchens, five or more bedrooms with ensuite bathrooms, a helper’s room, a family area, and internal lift, and parking space for at least two cars. In the case of detached houses and Good Class Bungalows (GCBs), a basement level and swimming pool are often built in as well.

With an expansive rebuild, a new terrace house could have built-up area of 3,000-4,000 sq ft, compared to 1,800-2,000 sq ft of a conventional one. Similarly, new semi-detached and detached houses often have built-up areas that are double the more usual size.

For example, a new intermediate terrace house at Grove Drive with a land area of 1,695 sq ft and a generous built-up area of around 4,800 sq ft was sold for over S$4,400 psf in August 2023. The two-storey-plus-mezzanine-and-attic property had five bedrooms, parking space for two cars and an internal lift. In comparison, an intermediate terrace house built in the late 1970s at 94 Grove Drive with land area of 2,009 sq ft was sold a year ago, in July 2022, for S$5.1 million (S$2,539 psf). At S$4,400 psf, the new terrace house sold in 2023 fetched a premium of 73 per cent over the older property in the same neighbourhood.

What makes up value in a landed home?

Caveats data from the URA shows the median price for transactions of new landed homes (including rebuilt and new-build properties) on the rise from 2018 to 2022, across detached, semi-detached and terrace houses.

But in 2023, from January to August, prices dipped slightly due to several factors such as lower sales volume, more transactions outside the prime districts and the sale of more 99-year leasehold homes. Out of the 28 new terrace house deals during the period, 22 caveats for 99-year leasehold units at Pollen Collection were lodged, priced at S$2,100 psf on average, bringing the median price of new terrace houses down to S$2,199 psf.

Among the three housing types, the median land price of new detached houses saw the biggest jump of 60 per cent from S$1,959 psf in 2018, to S$3,136 psf in 2023.



The median land price of new semi-detached houses gained 28 per cent over the same period from S$2,106 psf to S$2,704 psf. For new terrace houses, land prices rose 26 per cent from S$1,745 psf to S$2,199 psf.

The significant rise in new house prices could be attributed to strong demand from locals, higher land prices due to limited supply and the higher cost of quality homes. Based on our observation, affluent locals – with some help from their parents – choose to invest in detached, semi-detached and terrace houses because they see them as a better asset to preserve value in the long term. New wealth coming from ultra-high-net-worth new citizens tends to be invested in new, or newer GCBs.

Looking more closely at the data for popular landed districts, we can see a different price dynamic emerging. Comparing prices of new freehold landed homes in districts 10, 11 and 15 in the period 2018 to 2020 against the period 2021 to 2023 year to August, prices of new terrace houses led with the biggest average increase of 41 per cent. This is mainly due to homeowners’ desire to maximise land use and build multi-generational homes crafted with top-end specifications.



“The redevelopment of a single house presents an extremely unique opportunity to intensify the land use without incurring land betterment costs. With increasing construction costs as well as the necessary downtime to implement redevelopment efforts, it is worth looking at the price over built-up area versus land size. We can safely say that a house with bigger built-up area hence greater potential use, is more valuable than one that sits on a similar sized plot with a smaller built-up area,” said Sebestian Soh, Principal of Meir Homes.

Considering these developments, the provision of built-up area in addition to land area in caveat data will be most useful to home buyers, sellers, valuers and bankers when using comparable properties to determine the true value of a landed home.

Design flexibility for landed housing

In February 2015, URA introduced a new set of envelope control guidelines to direct the redevelopment of landed houses. The rules were subsequently revised to allow greater flexibility for the design of spaces involving mezzanine floors and attic.

Never has the need for more living space been more acute than during the Covid-19 pandemic years of 2020 to early-2022. Mindsets changed towards both living and working environments, and a bigger living space combined with more private space ranked among top priorities.

Homebuyers are now more prepared to invest in a better and larger property, and some home in on older properties with the intention to redevelop bigger new homes. As the recent rapid rise in land and construction costs has become a concern, homeowners and developers with a desire to maximise habitable or saleable space task their architects to fully exploit the allowable parameters.

There is also what one veteran developer of landed homes who declined to be named refers to as the “built quality” of a landed home. “’Built quality’ refers to the layout, the spaciousness, the functionality, workmanship and choice of materials for the house. The developer and architect need to have a good sense of these attributes in order to build a home that meet the needs of the dwellers. More importantly, with the built-up area already optimised, it should be a home that can last for a few generations,” he explained.

Outlook

The sales momentum of landed home transactions slowed down considerably in 2023, due to a confluence of factors such as risk of economic recession, the ongoing effects of the war in Ukraine, rising interest rates and inflation.

The latest hike in Additional Buyer’s Stamp Duty in April 2023 has also caused some potential buyers to hold back.

Up to the end of August 2023, only 819 caveats have been lodged for landed homes (new and resale). We expect the total sales volume for the whole year to be around 1,200 units, some 30 per cent lower than the sales volume in 2022. The URA price index for landed homes gained 7 per cent in the first half of 2023, after rising by 9.6 per cent in 2022 and 13.3 per cent in 2021. The uptrend is expected to continue, but at a slower pace, in the second half of 2023.

Han Huan Mei is research director and Nancy Tey is senior associate vice-president at List Sotheby’s International Realty

[New Reporter]

Mass market condo segment key to stability

Ensuring that supply and demand match will support the broad base of the private residential marketLee Sze Teck and Mark Yip

Lee Sze Teck and Mark Yip

Sep 28, 2023

PRIVATE non-landed residential properties in the Outside Central Region (OCR), also known as the mass market segment, made up around 46 per cent or 149,498 units in Singapore as at end-June 2023. The Rest of Central Region (RCR) and Core Central Region (CCR) accounted for 31.7 per cent and 22.3 per cent respectively, in the second quarter of 2023.

The proportion of non-landed private homes in the OCR has remained fairly stable over the past several years, from Q1 2017 to Q2 2023. Based on caveats from Jan 1, 2017 to Aug 22, 2023, 46.4 per cent of transactions are in mass market homes. OCR homes are favoured by HDB upgraders, due to buyers’ familiarity with the region as well as the affordable quantum.

Thus, any significant change in transaction volume and prices in the OCR could have a profound effect on the property market. Ensuring a stable supply of non-landed homes and prices in the OCR is paramount for market stability.

The government maintains stability in the property market through managing land supply, implementing cooling measures to curb buying and macroprudential measures that address financial system risk.

When private home prices in the OCR shot up 8.7 per cent in the first half of 2018, measures such as the increase in Additional Buyer’s Stamp Duty (ABSD) and tighter Loan-to-Value Ratio (LTV) were rolled out to tame prices.

Property prices in the OCR eased by 0.1 per cent the quarter immediately after – Q3 2018 – and grew more sustainably in subsequent quarters.

When property prices went out of sync with economic fundamentals in 2021, 2022 and 2023, further loan tightening measures such as a lower Total Debt Servicing Ratio and higher medium-term interest rate floor were announced, in addition to higher ABSD. In December 2021, the government also announced that it would ramp up housing supply to meet demand.

Tracking supply, tracing demand

The en bloc cycle which started in 2017 and slowed down in 2018 greatly increased the supply of private residential dwelling units for development in the OCR by an estimated 10,000 in these two years.

The bigger developments sold in 2017 and 2018 were Florence Regency, Park West, Rio Casa, Serangoon Ville and Tampines Court. These were rebuilt into mega projects: the 1,410-unit The Florence Residences, 1,468-unit Parc Clematis, 1,472-unit Riverfront Residences, 1,052-unit Affinity at Serangoon and 2,203-unit Treasures at Tampines.

Subsequently, the government reduced the supply of private residential dwelling units from sites offered under the Government Land Sales (GLS) programme by an estimated 50 per cent. Land for an average of around 1,200 units a year was released in 2018 and 2019, from more than 2,500 units in 2017.

Between 2017 and 2020, land sales from the en bloc market and under the GLS programme ensured a steady supply of new private homes launched for sale in the OCR, in the range of 4,000 to 5,000 units a year.

The onset of the Covid-19 pandemic injected unprecedented uncertainty in the economy, and the government further cut the supply of private residential dwelling units in the OCR under the GLS programme to 680 in 2020. This was probably the lowest level on record.

When the economy grew strongly by 7.6 per cent in 2021, demand for homes returned with a vengeance. The severe undersupply of new homes met with a strong recovery in demand, creating the conditions for a perfect storm.

Private property prices in the OCR surged by 8.8 per cent in 2021 and 9.3 per cent in 2022. This prompted new rounds of cooling measures in December 2021 and September 2022. To meet the increased demand, the government ramped up the supply of OCR land under the GLS programme in 2021 by 134 per cent to an estimated 1,590 private residential dwelling units. OCR land supply was bumped up by another 76 per cent in 2022, to 2,790 units.

In 2023, supply of OCR land in the GLS reached a 10-year high of 3,455 units. As there is a time lag of at least 12 months from the sale of a land parcel to the launch of the project for sale, the number of private residential units launched for sale in the OCR fell significantly and hit a low of just 1,669 in 2022. This was a result of low land sales during the pandemic.

The increase in land supply in the OCR in 2021 and H1 2022 brought more launches in 2023. Between Jan 1 and Sep 4, 2023, an estimated 1,716 new private homes have been launched for sale in the OCR.



Another 500-odd units in the OCR may be offered for sale in Q4 2023. Upcoming launches may include Hillhaven, Hillock Green and J’den.

Hillhaven is a 341-unit project in the Hillview private residential enclave and is just minutes’ walk to Hillview MRT station. Hillock Green is a 474-unit project in the upcoming Lentor private residential enclave and is opposite a shopping mall and Lentor MRT station. J’den, in the heart of Singapore’s second Central Business District, is a redevelopment of the former JCube and houses 368 units.

These may bring the total number of launched units in the OCR to an estimated 2,307 in 2023. While this is higher than 2022’s 1,669 units, it is still much lower than 2021’s 2,951 units and the annual average of 4,000 to 5,000 units from 2017 to 2020.

Outlook

The increase in supply however is coming against a backdrop of slower sales for recent launches.

Mass market homes tend to see more demand from HDB upgraders. But the number and proportion of buyers with an HDB address has declined in recent years. Buyers with an HDB address made up almost 50 per cent of new sales in 2017. Based on caveated transactions as at Aug 22, 2023, this has come down to 20.5 per cent. A similar trend was also observed for the RCR and CCR.



The key turning point was probably when the government raised ABSD to 17 per cent for a second property on Dec 16, 2021. Including the downpayment of 25 per cent and stamp duty of 4 per cent, HDB upgraders will have to cough up close to 50 per cent of the purchase price in cash and/or Central Provident Fund monies when they buy a new private home.

It was previously easier for many to sell their flat and rent or stay with parents or relatives in the interim. But the Covid-19 pandemic upended these plans. Rents spiked with a crunch in supply of available flats for rent, as work-from-home routines took hold and households required more space. One alternative is to buy a new executive condominium (EC) unit. But EC projects have strict qualifying conditions, and many HDB upgraders do not qualify.

This current market friction is not ideal and will constrain upward housing mobility in the long run. It may also affect the stability in the mass market segment. It is perhaps timely to review the ABSD on HDB upgraders as the nation refreshes its social compact.

Lee Sze Teck is senior director of data analytics and Mark Yip is chief executive at Huttons Asia

[New Reporter]

Short-term pain could make way for long-term gain in prime condos

While cooling measures dampen near-term prospects, the CCR offers an interesting value proposition and potential margin of safety

Wong Xian Yang

Sep 28, 2023

THE prime condominium market has seen better days. The latest cooling measures, implemented in April 2023, have further tempered demand for prime condos with the increase in Additional Buyer’s Stamp Duty (ABSD) rates for most types of buyers. For foreigners, ABSD rates jumped to 60 per cent of the property purchase price.

Unsurprisingly, foreign demand for prime condos has frozen. After the latest measures, foreigner buying activities in the prime condo market – defined by non-landed units in the Core Central Region (CCR) – have plunged.

The proportion of foreign demand fell to 4 per cent of total prime condo transactions in July 2023, a new monthly low since December 2008.

That said, prime condo prices have not collapsed as the market is primarily supported by local resident demand.

Based on data over the past five years, the average monthly proportion of foreign demand for prime condos is about 13 per cent of total purchases.

The largest fall in foreign demand was from Chinese buyers, whose purchases plunged to zero in July 2023.

Even buyers from the United States, who are relatively unaffected by the latest cooling measures due to existing Free Trade Agreements, have held back, with volumes falling by 57 per cent year on year in July 2023. The mix of foreign buyer demand is likely to show more prominent US demand in the future, though it is unlikely to offset the decline from other source markets.

No doubt, market sentiment has cooled, and many buyers are adopting a watch-and-wait stance. Overall prime condo prices showed a 0.1 per cent dip while volumes declined 8.8 per cent in Q2 2023 compared to Q1.

Prime condo prices may still end 2023 in positive territory as sellers have holding power. As at Q2 2023, prime condo prices are still up 0.8 per cent year to date. Based on our analysis of caveats (matched caveats with a prior transaction history since 2012, excluding transaction costs), most prime condo transactions remain profitable: 78 per cent of transactions in Q2 2023 were profitable and only 22 per cent were loss-making.

Sellers’ asking prices have stayed relatively firm. Barring an unexpected deterioration in economic conditions, the long-term fundamentals for the prime condo market remain unchanged. Property replacement and transaction costs remain high.



The lower you climb, the milder the fall?

While the latest round of cooling measures has dampened near-term prospects, the prime market offers an interesting value proposition and potentially provides a margin of safety amid current heightened pricing levels.

We analysed annual price growth across the prime, mid-tier (Rest of Central Region, RCR) and mass market (Outside Central Region, OCR) segments of the condo market.

In our analysis, the prime condo market outperformed the mid-tier and mass market segments between 2005 and 2007, in the run-up to the Global Financial Crisis (GFC).

However, post GFC, prime condo demand was slow to recover. Furthermore, consecutive rounds of cooling measures tightening liquidity and tempering investment demand have further flattened demand.

As such, the prime condo market has been a multi-year laggard relative to other segments. Over a 10-year historical period, prime condo prices only grew by 4 per cent cumulatively as at Q2 2023, compared to mid-tier and mass market condo price growth of about 34-35 per cent.



This has led to a shrinking price gap between the prime, mid-tier and mass market condos. In 2013, prime condos resale prices were about 1.3x and 1.8x that of mid-tier and mass market counterparts, based on analysis of caveats for non-landed resales of apartments of 900-1,100 square feet.

For YTD 2023 (January-August), the resale price gap between prime versus mid-tier and mass market has shrunk to 1.1x and 1.4x respectively.

Notably, the prime condo market saw greater price resilience from 2014 to 2016, when the Singapore housing market went through a soft landing following the implementation of the Total Debt Servicing Ratio (TDSR) in 2013.

The prime market fell by only 7.7 per cent between 2014 and 2016, compared to mid-tier and mass market which fell by 11.9 per cent and 9 per cent respectively over the same period.

While we don’t anticipate a property market downturn, potential downside risks are arguably increasing. Sluggish economic growth, heightened interest rate levels, cooling measures coupled with a recent run-up in prices have dampened buyer demand and sentiment.

Should a downturn occur, the prime market could prove to be relatively more resilient as prices have not run up as much.

Short-term pains but long-term repricing potential

Over the short term, foreign demand would remain depressed as current ABSD rates are prohibitive. Given that foreigner demand has plunged to near-record lows and represents a small proportion of total buying demand, we speculate that current cooling measures would eventually be tweaked, and could provide a potential catalyst for prime condo demand.

Prime condo rental yields are also more attractive with the recent run-up in rents.

Unlike prices, prime condo rents have largely kept pace with their mid-tier and mass market counterparts.

Over the last one year (H2 2022 to H1 2023), prime condo rents have increased by 24.5 per cent, compared to mid-tier and mass market rental growth of 27.4 per cent and 28.5 per cent.

Given Singapore’s position as a regional business hub and sustained financial sector growth, coupled with a strong return to office, rental demand for prime condos could grow.

Given a mismatch in price and rental growth, prime condo gross rental yields have risen to about 3.9 per cent in H1 2023, based on analysis of caveats for non-landed resales of apartments of 900-1,100 square feet between January and June 2023.

This compares with mid-tier and mass market condo yields of about 3.9 per cent and 4.3 per cent respectively.

Another potential catalyst is the introduction of new housing supply in the Central Business District (CBD).

A slew of new launches in the CBD are expected to be launched over the next few years. These new launches would set new pricing benchmarks and could catalyse resale price growth.

With sentiment for the prime condo market dimming, opportunities could emerge. The prime condo market presents an interesting value proposition, with steady rental demand and long-term re-pricing potential.

However, prime demand remains selective, and investors need to do their due diligence. Not all prime condo investments are profitable.

Given current market uncertainties, prospective buyers should adopt a long investment horizon and buy within their means to reap the long-term repricing benefits.

Wong Xian Yang is head of research, Singapore and South-east Asia, at Cushman & Wakefield

[New Reporter]

Respite for residential renters around the corner

Rental growth has pulled back from the surges of the past two years, but suburban and HDB markets are holding strong

Christine Sun and Timothy Eng

Sep 28, 2023

THE private residential rental market may have turned a corner after relentlessly rising for almost three years. Rents could be peaking soon, as rental growth slowed for a third consecutive quarter in the second quarter of 2023.

The slower leasing market spells good news for tenants, for whom recent renewals at jacked up rents have been a cause of much anxiety.

According to the Urban Redevelopment Authority’s quarterly real estate data, the rental index for private residential properties climbed at a significantly slower pace of 2.8 per cent in Q2 2023, compared to quarterly gains of 7.2 per cent in Q1 2023 and 7.4 per cent in Q4 2022.



Demand has contracted. Rental volume for non-landed and landed properties (excluding executive condominiums or ECs) fell for three straight quarters from 25,657 units in Q3 2022 to 19,699 units in Q2 2023.

Last quarter marked the lowest rental volume since 19,281 units were leased in Q4 2017, well below the 23,082 quarterly average for the previous five years. Some of the loss of volume could be attributed to locals who had been renting temporarily while their HDB flats and condominiums were still under construction.



Fewer deals were also closed as many landlords held on to their asking rents. Meanwhile, last year’s surge in rentals impacted affordability for many expatriate residents, some of whom moved to cheaper properties or leased smaller units.

Rental slowdown observed across the entire market

Signs of cooling seem to be broad-based as rents rose more slowly across all market segments. The luxury market was hardest hit. Rental growth for non-landed homes in the prime segment or Core Central Region (CCR) rose 2 per cent in Q2 2023, which was 4.4 percentage points less than the 6.4 per cent increase in the preceding quarter.

In city fringe locations or the Rest of Central Region (RCR), rents grew by 2 per cent, down 4.2 percentage points from the 6.2 per cent gain in Q1.

Landlords of suburban or Outside Central Region (OCR) properties fared best – rental growth dipped only 3.2 percentage points from 6.1 per cent to 2.9 per cent in Q2.

Rents grew slower for smaller homes in the prime segment

Within the prime segment, smaller units saw the most impact. Price growth for one-bedroom units in the CCR fell back by seven percentage points from 9.4 per cent in Q2 2022 to 2.3 per cent in Q2 2023, according to URA data.

For two-bedroom units, growth slipped by 5.2 percentage points to 1.8 per cent in Q2 from a robust 7 per cent in Q1.



But bigger homes held on to gains. Rental growth for four-bedroom units registered 4.2 per cent gains in Q2, just 1.3 percentage points slower than the 5.4 per cent in Q2 2022.

Similarly, rents rose by 2.6 per cent quarter on quarter (qoq) for three-bedroom units in Q2 2023, about 2.4 percentage points lower than the 5 per cent gains in 2022.

Demand for suburban condos and HDB flats remains resilient

As escalating costs squeezed tenants’ budgets, more locals and expats leased mid to large-size units in the suburbs to get the most bang for their buck. This may explain why demand and rents in the OCR were most resilient among the three market segments this year.

Further, demand for HDB flats remains robust. Unlike the private market, there was a pick-up in rental volume even as HDB rents climbed to new records. Total HDB rental transactions rose by 1.9 per cent from 9,657 units in Q1 2023 to 9,842 units in Q2 2023, based on data from the Housing and Development Board. Over the same period, rents inched up by 3.2 per cent, going by SRX’s HDB rental index.

Many young expats and Employment Pass holders, especially single executives, shifted to HDB neighbourhoods in the city fringe areas, or near their workplaces and MRT stations, as they prioritise affordability and accessibility over having condo facilities.

To avoid digging deeper into their pockets, many local renters have similarly downgraded to HDB flats.

Rents may peak in H2 this year

The rental market is now facing a triple whammy – increased housing supply, declining local demand and a slowing economy.

Supply was ramped up as 4,401 private residential units (including ECs) were completed in Q2 2023, about 16 per cent more than the 3,785 units completed in the preceding quarter.

Year on year, completions were significantly higher. Q2 completions tallied at 83 per cent more than the quarterly average of around 2,400 units in 2022.



With more private home completions, competition for tenants has intensified.

Last quarter’s vacancy rate rose to a seven-quarter high of 6.3 per cent.

We can expect some tenants not to renew their leases in the coming months with more new units coming onstream in the suburbs and city fringes.

Dimming macroeconomic prospects have also cast a shadow on the rental market.

Total employment is expanding slower, retrenchments are rising, and job vacancies dropping.

When major economies like China slow down, the impact on global businesses will trickle down in job cuts or smaller expat budgets.

With more housing supply coming onstream, we estimate rents may grow by a slower rate of 12 per cent to 14 per cent this year, down from 29.7 per cent in 2022.

Total rental transactions excluding ECs may fall from 90,291 units in 2022, to 75,000-80,000 units this year.

Christine Sun is senior vice-president and Timothy Eng is assistant manager of research & analytics at OrangeTee & Tie

[New Reporter]

Executive condos are still residential market darlings

Even as prices continue to rise, new ECs remain accessible and show strong potential for investment gains

Ismail Gafoor and Wong Siew Ying

Sep 28, 2023



FOR many Singaporean families, buying an executive condominium (EC) is akin to getting a golden ticket to owning a private property.

By design, ECs – a public and private housing hybrid – are meant for the “sandwiched class”. Higher household income disqualifies this group from buying a new Build-To-Order (BTO) flat from the Housing and Development Board, but they also find it tough to make the step up to a private residential property. The monthly household income ceiling to be eligible for EC purchase is S$16,000, while that of BTO HDB flats is S$14,000.

ECs present a happy middle for such buyers and unsurprisingly, see healthy demand.

The latest new EC to hit the market, Altura in Bukit Batok, sold 61 per cent of 360 units over its launch weekend at an average price of S$1,433 per square foot (psf). Based on transaction data, there are about 420 unsold new EC units on the market – low compared to other sub-markets. Another Bukit Batok EC is expected to be launched in early 2024.

Compelling product

ECs appeal to buyers for a number of reasons, the biggest draw being their more affordable pricing compared to new private condos. In the year-to-Aug 20 period, the median unit price of new ECs came in at S$1,409 psf, compared to S$2,073 psf for new 99-year leasehold, non-landed private homes in the Outside Central Region (OCR). This makes for a sizeable price gap of 47 per cent (see Table 1).



As the median price of resale ECs creeps up to S$1,257 psf, some may not mind paying slightly more (12 per cent) for a new EC. In recent years, the median unit price of new ECs has also tipped over that of OCR resale 99-year leasehold non-landed private homes – with a price difference of 6.7 per cent so far this year.

This makes resale OCR condos a viable option, but buyers may still prefer new ECs given their fresh 99-year lease and potential upside on resale.

Buyers may also be eligible for a subsidy of up to S$30,000 under the CPF Housing Grant Scheme when they buy an EC unit from the developer. There are no subsidies for the purchase of private homes.

The potential for future gains is not lost on buyers. Past trends show first owners of new ECs making healthy profits when they resell the EC either after the five-year minimum occupation period (MOP), or following full privatisation of the EC project 10 years from its completion date.

Search for capital gains

Assessing EC projects built in the past 10 years, the 10 biggest estimated capital gains (excluding stamp duty and other transaction costs) from EC resales ranged from S$840,000 to nearly S$1.2 million (see Table 2), based on URA Realis caveat data up to Aug 20, 2023. The biggest gainer was a 14th-floor unit at The Tampines Trilliant, which was purchased for S$1.23 million as a new project in December 2012 and resold for nearly twice the price in July 2023.



The Tampines Trilliant also booked the highest average capital gains by quantum on a project basis this year, data up to Aug 20 indicated. Out of 21 units sold on the resale market, 19 deals reflected an average estimated capital gain of more than S$670,000 each (see Table 3).



Ease of exit is another advantage in buyers’ minds. Buyers may perceive that new ECs in Tengah, for instance, where thousands of new BTO flats are being built, are likely to enjoy good upgrader demand in the future.

A lower purchase price compared to private condos in the same area could also mean higher rental yields for owners.

Stable demand pool and limited stock

ECs are meant for owner-occupiers at the outset, and many buyers of new ECs are either first-time homebuyers or are upgrading from public housing. They are usually not affected by cooling measures such as the raising of Additional Buyer’s Stamp Duty rates, which targets investors. This ensures a more stable demand pool for ECs.

Meanwhile, HDB upgraders will support EC demand. About 15,750 flats are estimated to exit their five-year MOP in 2023. Currently, up to 30 per cent of units at new EC projects are allocated to second-timers during the first month of public sales launch. Thereafter, they are open to all eligible buyers.

With stronger take-up rates and more stable demand, the EC market could be seen as a safe haven for developers, posing lower risks compared to other private residential sites. In public land tenders which closed in 2023, four private residential plots drew an average of three bids each, while two EC sites garnered eight bids each on average.

One of the EC land tenders – for the Plantation Close site in Tengah – was recently awarded for a record land rate of S$703 psf per plot ratio (psf ppr), besting the previous record set in 2022 by the Bukit Batok West Avenue 8 EC site at S$662 psf ppr. At the time of writing, the bid for the Tampines Street 62 (Parcel B) EC plot is still being evaluated. PropNex expects its land rate could hover close to the S$680 to S$700 psf ppr range.

Limited stock of ECs could contribute to pent-up demand. Typically, only two new EC plots are offered for sale under the Government Land Sales Confirmed List each year. Developers also cannot launch new EC projects for sales booking till 15 months after the date of site award.

Testing affordability threshold?

A rising tide lifts all boats, and EC prices – like those of other housing segments – have increased. Cost-push factors such as high land prices and rising construction costs have also exerted upward pressure on EC prices. Based on caveats lodged, the median transacted price of new ECs came in at S$1.44 million in 2023 till August, climbing from S$1.36 million in 2022 and S$1.23 million in 2021.

As prices inch up, they may soon test the affordability threshold of EC buyers whose access to home financing is curbed by the 30 per cent mortgage servicing ratio (MSR) limit. Taking a monthly household income of S$16,000, interest rate at 4 per cent per annum and a loan tenure of 25 years, the MSR limit means buyers can borrow just over S$900,000 from banks for their purchase. As the price quantum rises, buyers will have to fork out more funds upfront to buy new ECs.

Based on PropNex’s observations, new ECs are still accessible to many buyers, with 65 per cent of new EC transactions so far this year priced at below S$1.5 million, 22 per cent of sales done at between S$1.5 million and below S$2 million, and the remaining 13 per cent at S$2 million and over. Help from parents to children, as well as upcoming proceeds from the sale of their HDB flats could also have factored into buyers’ decisions.

All things considered, ECs continue to be a residential property market darling. They also remain relevant in Singapore’s housing system, as a tool to improve social mobility and offer more options to Singaporean households.

Ismail Gafoor is chief executive and Wong Siew Ying is head of research and content at PropNex Realty