August 2011

Update on Singapore Property Market

An average performance
At first glance, the private residential property market appeared to have performed very well in this July. Developers sold a total of 1,386 private homes in this July (excluding Executive Condominiums), which is 17.3% higher than the sales in the previous month. However, from another perspective, the developers sales performance in July is just average because it is similar to that of the 6-month average primary market sales, which is 1,377 units per month. Furthermore, the sales volume in June was one of the lowest figures this year. Therefore, it is not surprising that the sales figure in July was comparatively higher. When the number of Executive Condominiums (EC) sold is added to the primary market sales, the July sales volume becomes more impressive. Developers sold 1,954 units, including Executive Condominiums, in July, which is 23.8% higher than the 6-month average sales volume. A total of 568 EC units were sold by developers, which made up 29% of the total primary market sales in July. The number of EC sold in July is not only 2.8 times more than the 6-month average, it is also the highest monthly sales on record in the past 4 years. Most of the EC units sold in July were in two EC projects, namely RiverParc Residences at Punggol and Blossom Residences at Choa Chu Kang. Primary market sales in the high-end segment is still quite subdued with 122 units sold, which is the same number of units sold in the preceding month. The most expensive apartment sold by a developer in July was a unit of The Orchard Residences, which was transacted at $4,299 psf. The sales in the mid-tier segment improved with volume almost doubling from 227 units sold in June to 510 units sold in the following month. About half of the sales in July originate from two new residential projects launched in that month, namely Skyline Residences by Bukit Sembawang and Thomson Grand by Cheung Kong. A total of 167 units and 108 units in Skyline Residences and Thomson Grand were transacted respectively. Island-wide, the best-selling project in July was RiverParc Residences with 322 units out of a total of 504 units sold at a median price of $694 psf in the month. This is followed by Blossom Residences, with 192 units sold in July. The best-selling non-EC project in July was Skyline Residences, which is at Telok Blangah, where 167 units were sold at a median price of $1,902 psf. The strong sales in the EC market segment indicate that demand in the mass market is still quite robust. It also illustrated that some HDB upgraders, which contribute significantly to the mass-market demand, would shift from buying private homes to EC if the prices and attributes of the EC project appeal to them.

Source: Nicholas Mak, URA

Raising the ceiling

In his National Day Rally speech, Prime Minister Lee Hsien Loong announced that the government will increase the HDB monthly income ceiling from the current $8,000 to $10,000 for HDBs build-to-order (BTO) flat, and from $10,000 to $12,000 for Executive Condominiums. This change was largely anticipated because in the campaign period of the recent General Election held this May, the former Minister for National Development said that the HDB income ceiling will be reviewed. But the details were not fully released then. This increase in income ceiling is long overdue as it had remained unchanged for the past 17 years. According to official figures, compared with 17 years ago, the monthly income of an average employee had increased by 130%. Therefore the 20% to 25% increase in income ceiling is not excessive. The impact of this policy change is likely to fall the HDB resale market more than the private property market. Homebuyers in the household monthly income bracket of $8,000 to $12,000 are likely to buy either resale HDB flats, EC or DBSS flats. The exceptions are some homebuyers, such as HDB flat owners with substantial savings, who are determined to upgrade to private properties. But some of these potential upgraders, whose household income are $12,000 or lower, may now explore the EC market instead. This change is also largely welcomed by those in the $8,000 to $10,000 income bracket because they may shift from buying from the HDB resale market to applying for new BTO flats, which are cheaper than resale flats. Based on anecdotal surveys of EC buyers, the demand for EC could increase by between 1,500 to 2,500 units in the first year after this policy change, assuming there is no economic recession. This increase in demand could come at the expense of the demand for HDB resale flats and private mass-market segment. However, developers of EC must be careful not to increase the prices of their projects aggressively because these homebuyers are generally very price sensitive and may have limited budget.

Outlook
The residential property sales volume in August is expected to be lower than that of July, partly due to the Hungry Ghost month, which falls mainly in August. However, there are some things that investors may find scarier than any spirit from the nether world, which is the approaching ominous spectre of a global recession. In the first three weeks of August, the Dow Jones Industrial Average and the Straits Times Index had dropped by 10.9% and 14.3% respectively. This is contributed by investors nervousness of the possibility that the US economy could be slipping into a recession and the absence of a permanent solution to the Euro-zone debt crisis. If the stock markets continue to be awash by a sea of red ink, it is only a matter of time before sentiments in the property market would be adversely affected. By 29th August, the Hungry Ghost month would have ended, but the shadow of a global economic slowdown would continue to loom over the Singapore property market.

About the Contributor

Mr Nicholas Mak is a veteran in the real estate market with experience of more than 10 years in the areas of research, consultancy and business development. Mr Mak is currently the Executive Director of the Research & Consultancy Department of SLP International Property Consultants. Besides conducting research, he provides real estate advisory services to government statutory boards, real estate funds, developers and financial institutions.

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Printed on 08/2011