Amid the overall soft property market conditions, savvy private home buyers looking for attractive deals zoomed in on the Core Central Region (CCR) last year. Government data released on Thursday showed the region was 2016's outperformer in terms of percentage increase in transaction volumes, which in turn provided some ballast for prices in the region.
The total number of private homes sold in CCR through both primary and secondary markets surged 48.7 per cent to 2,764 units in 2016 over the preceding year. This is a faster pace of increase compared with the 27.2 per cent rise in transaction volume in the city fringe or Rest of Central Region (RCR) to 4,868 units and a 3.7 per cent increase in transactions in the suburbs or Outside Central Region (OCR) to 8,746 units last year.
The sparkling increase in CCR sales volumes was accompanied by greater price resilience in the region. URA's price index for non-landed homes in CCR posted a relatively modest drop of 1.2 per cent in 2016 - compared with the price contractions of 2.8 per cent in RCR and 3.4 per cent in OCR. Industry observers noted that it was the CCR which led price declines during the earlier stages of the current downcycle and that prices are now deemed attractive, especially vis-a-vis other major cities.
There has been heightened interest in the prime market with both local and foreign investors trying to suss out attractive deals.
Buyers took the opportunity to enter the market as many sellers and developers are giving close to 20 per cent discount from the launch or peak prices in CCR. The attractive deferred payment schemes that some developers have rolled out in their delicensed projects since last year to drum up sales and avoid paying penalties to the state if they do not meet looming deadlines to finish selling their projects have also helped boost volumes.
The average price of new homes in CCR declined to S$2.4 million in 2016 from S$2.5 million in 2014 - a clear indication that the market is being driven by quantum play.
On the leasing front, URA's rental index for non-landed private homes in CCR eased 3.3 per cent last year, a smaller decline than the 3.8 per cent drop in 2015. In RCR, too, the rental decline eased to 1.9 per cent last year after slipping 4.9 per cent in 2015. That said, in the suburbs, the pace of the rental fall widened to 6.7 per cent last year after easing 5.6 per cent in the previous year.
When it came to vacancy rates, the pattern was somewhat different. Going by URA's newly introduced vacancy data for private homes (landed and non-landed combined) by regions, the vacancy rate for CCR and RCR remained high at 9.6 per cent at end-Q4 2016.
These two submarkets are more significantly affected by challenging leasing market conditions where there is a greater mismatch between units available for lease and the limited tenant pool. In the suburbs, the vacancy rate eased to 7.1 per cent at end-Q4 2016 from 8.3 per cent a quarter earlier.
Owner occupiers moving into their completed units would have contributed to this as well as a 30 per cent fall in the net change in available stock from Q3 2016 in OCR.
Market watchers said the juxtaposition of a high vacancy rate with a relatively small rental drop in CCR may be attributed to the stronger holding power of landlords of luxury properties, who may have the wherewithal to leave their units empty rather than to lease them out at a rental rate that may not be acceptable to them.
Moreover, some ultra high net worth individuals investing in prime properties are not doing so for rental-yield play but more for longer-term capital appreciation. Some also stay in their Singapore properties during their visits here, leaving them empty for most of the year.
On an islandwide basis, the vacancy rate for private homes eased to 8.4 per cent at end-Q4 2016 from 8.7 per cent at end-Q3 2016.
Last year, 20,803 private homes were completed, that is, obtained Temporary Occupation Permit, up from 18,971 units in 2015 and an all-time high. The figure is expected to ease this year to 14,826 units and fall further to 9,521 next year.
URA's overall private home price index eased 0.5 per cent quarter on quarter in Q4 2016, taking the full-year decline to 3.1 per cent - a slower pace of fall than 2015's 3.7 per cent drop. The benchmark index has slipped 11.3 per cent over 13 quarters (from its recent peak in Q3 2013).
Most analysts expect the index to continue its gentle decline this year, citing subdued economic growth and assuming the property cooling measures stay in place. ERA Realty Network key executive officer Eugene Lim puts the drop at 2 to 3 per cent.
During the market downturn of 2000-2004 (the dotcom bubble burst, the US-led invasion of Iraq and the deadly Sars outbreak in Singapore), the price index shed 20 per cent over 14 quarters of declines. It is possible that the current downturn could stretch to 17 quarters or more - but the price correction is likely to be minimal, at less than 20 per cent.
What is expected to prevent a drastic price drop this year is a steady increase in transaction volumes in both primary and secondary markets - supported by the perception that the market is nearing its bottom.
Compared to the residential sales market, the leasing market is behind the curve in recovery. Its downtrend will continue in 2017 with stability expected only in 2018. Difficult business conditions that have resulted in headcount reductions among expats, cuts in housing budgets and policy restrictions in the intake of foreign labour will continue to weigh on leasing demand.
Adapted from: The Business Times, 27 January 2017