Small units lead price falls for completed condos

SMALL units have led prices falls for completed apartments and condos year to date as well as on a year-on-year basis, according to National University of Singapore's October flash estimates for its Singapore Residential Price Index (SRPI).

The series - minted by the university's Institute of Real Estate Studies (IRES) and which tracks prices of completed non-landed private homes - shows that the subindex for small units (up to 506 sq ft) islandwide eased 3.1 per cent between December last year and October 2015. This is a bigger decline than the 2.3 per cent and 2.1 per cent falls respectively over the same period for the respective subindices for Central and Non-Central regions (both excluding small units). The Overall SRPI has slipped 2.2 per cent year to date.

On a year-on-year basis, the October flash estimates translate to a 4.6 per cent drop for the small units subindex, again outpacing declines of 4.4 per cent in the Central Region, 2.7 per cent in Non-Central Region and 3.5 per cent in the Overall indices.

Savills Singapore research head Alan Cheong attributes the trend of small units posting the worst price performance to a more severe rental erosion for shoebox units than for other apartments.

Over the past 18 months, companies have been reducing their housing budgets for foreign staff as part of overall cost-cutting measures.

"Increasingly foreigners being posted here are singles or even if they have a family, they come to Singapore alone; this profile of tenants may find it makes more economical sense to rent a room in, say, a two or three-bedroom apartment as the cost is lower than renting an entire shoebox unit," said Mr Cheong. This is creating downward rental pressure on shoebox apartments which in turn has a knock-on effect on prices, he added.

"Moreover, we are seeing an increasing number of overseas nationals coming here to work on a short-term/project basis - in which case budget hotels and airbnb also come in to play. All these trends are removing a traditional source of demand for the residential leasing market," he added.

NUS's October flash estimates show that islandwide prices of completed small apartments and condo units fell 0.6 per cent month-on-month in October, following a drop of 0.7 per cent in September (based on the revised index value for that month).

The subindex for Central Region posted a 0.3 per cent month-on-month gain in October - contrasting with September's 0.3 per cent drop. IRES defines Central Region as Districts 1-4 (including the financial district and Sentosa Cove) and the traditional prime Districts 9, 10 and 11.

In the Non-Central Region, prices were unchanged in October, after climbing 0.6 per cent in September.

The Overall SRPI edged up 0.1 per cent in October, following a 0.3 per cent month-on-month rise in September. R'ST Research director Ong Kah Seng described the price gains for these two months as "more of blips, rather a confirmed stabilisation or beginning of a price rebound" - given the enduring impact of the total debt servicing ratio (TDSR) framework and the surge in new private home completions from 2014.

Agreeing, OrangeTee's senior manager of research and consultancy, Wong Xian Yang, noted that multiple headwinds continue to prevail for the residential property market on the whole. "A possible reason for the minor price increases in the Overall SRPI for two consecutive months could be due to increased demand in the resale market, where buyers tend to have more negotiating power - compared to picking up a unit from a developer."

Downward pressure on prices of completed homes is set to continue as rents are likely to keep heading south - on the back of 22,351 private homes slated for completion next year, he added. Morever, with rising interest rates, some over-leveraged investors may face difficulty servicing their mortgages if they cannot find tenants and be forced to sell their properties.

Mr Ong of R'ST said the current pace of marginal price declines is likely to persist into 2016 but there could be a "blow-out in prices" of completed private residential properties, with about 5-10 per cent price declines per quarter for, say, two quarters. "This could take place in Q2 or Q3 2016 and attract opportunistic buyers - after which prices may rebound quickly," he predicted.

He also highlighted that by around mid-2016, more owners would have cleared the four-year holding period to avoid paying seller's stamp duty upon resale of their private residential property. "Those who rushed in to buy private condos from developers in 2011-2012 - and who face weak leasing demand, especially for suburban condos, may be more willing to cut prices and move on."

This article was first published on December 1, 2015.
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