Following a lackluster start in 1Q 2011, the Singapore auction property market experienced a healthier second quarter, with the total value of properties sold increasing by 48.5 per cent on a quarter-on-quarter (QoQ) basis to S$41.38 million in 2Q 2011.
The improved total sales value registered in 2Q 2011 is contributed by a number of high-value non-residential property sales, instead of residential type that typically forms the largest proportion of auction sales.
Ms Grace Ng (黄黎明), Deputy Managing Director of Colliers International, says, “The second quarter presented an atypical phenomenon, in which the auction property market witnessed an absence of high-value residential transactions, as well as a general drop in the value of residential sales. Instead, there was a major shift in buyers’ focus to commercial and industrial properties.
This could be attributed to buyers’ increasing price sensitivity and their wait-and-see attitude amid the more stringent cooling measures introduced to the residential sector, which diverted buying interests from the sector to non-residential ones.”
Consequently, the total sales value in 1H 2011 tallied to S$69.25 million, generated from the sale of 33 properties. This is 49.4 per cent down from the S$136.91 million garnered in 2H 2010 and 20.4 per cent down from the S$86.99 million in 1H 2010.
A total of 162 properties were put up for auction sale in 2Q 2011 – of which, 153 were put up by property owners, while only 9 were mortgagee sale. The low proportion of mortgagee sale reflects the improved financial position of mortgagors, on the back of Singapore’s healthy economy, the continued low interest rate environment and good rental market which allows mortgagors to service their loans.
Lull in sales observed in the residential sector
Residential sales, which typically forms the bulk of auction sales, was low in 2Q 2011, with only four transactions contributing only 10.9 per cent (or S$4.53 million) to the total sales value of S$41.38 million. This is significantly lower than the 39.7-per-cent and 55.1-per-cent contribution by the sector in 1Q 2011 and 2Q 2010, respectively.
On a QoQ basis, the S$4.53 million worth of residential properties transacted in 2Q 2011 also represented a 59.1 per cent fall in sales, from the S$11.08 million worth of transactions garnered in 1Q 2011.
Ms Ng comments, “The fall in sales value of residential transactions this quarter is the result of the cooling measures1 introduced by the Government in January 2011, as well as the continued stalemate between buyers and sellers.
While sellers generally remained bullish about asking prices, buyers, on the other hand, took on a wait-and-see approach. Amid the recently-announced plans by the Government to ramp up the supply of public housing, buyers have since adopted a wait-and-see approach to await any further possible policy change.”
Manwhile, no landed properties were transacted at auctions in 2Q 2011, compared to 1Q 2011 in which there were three such transactions.
Ms Ng explains, “This could be the impact of the steep run-up in landed property prices. As of 1Q 2011, the landed residential price index from the Urban Redevelopment Authority showed that prices of landed homes in 1Q 2011 had already surpassed the previous peak in 2Q 2008 by 36.7 per cent.
With increased price sensitivity, potential purchasers have, hence, adopted a cautious stand and focused more on affordably-priced properties in the region of S$1 million and below.”
For instance, condominium units at Parc Palais (Hillview/Upper Bukit Timah) and Seletaris (Sembawang Road) were sold for S$1.07 million and S$850,000, respectively, during the quarter.
Additionally, there was also a dearth of high-value good class bungalow (GCB) transactions in 1H 2011. This was a stark contrast to 2H 2010, when some S$57.44 million was amassed from four GCBs sold under the hammer.
Buying interest diverted to non-residential sectors, which witnessed several high-value transactions
Non-residential properties accounted for a major 89.1 per cent (or S$36.86 million) of the total auction sales in 2Q 2011.
Ms Ng comments, “The diversion of buying interest from residential property to non-residential such as industrial and commercial properties, including shops and shophouses, could be due to the fact that these property types are not regulated by the stringent cooling measures implemented in the residential market.
Additionally, potential buyers are generally able to obtain up to 80 per cent loan-to-value for such properties and are able to re-sell them without the need to pay hefty stamp duties. Mid- to long-term investors are also motivated by the attractive yields of between 5 per cent and 8 per cent for shops and shophouses, compared to just 2-3 per cent for residential properties.”
Specifically, shops and shophouses contributed 44.2 per cent (S$18.28 million) to the total quarterly sales value of S$41.38 million – of which, there were two high-value transactions (S$5 million and above) including a shophouse at 46 Hong Kong Street that was sold for S$5 million and a shop at Fook Hai Building for S$6.6 million.
Another high-value transaction that took place during the quarter included a petrol kiosk at 400 Jalan Ahmad Ibrahim which was sold for S$9.61 million. This transaction alone contributed 23.2 per cent to the total sales value in 2Q 2011.
Meanwhile, industrial properties made up 21.7 per cent (S$8.97 million) of the quarter’s total sales value. Those that were priced in the S$500,000-range were most popular with buyers at auctions in 2Q 2011.
For instance, three strata factory units at Tagore Industrial Building (Upper Thomson Road), Hiang Kie Industrial Buidling (Woodlands) and Alpha Industrial Building (Jurong) were sold for S$960,000, S$583,000 and S$430,000, respectively.
There was no strata-titled office property transaction in the quarter due to the lack of supply.
Outlook: commercial and industrial properties are expected to appeal to investors, with sales of landed properties picking up
Looking ahead, on the back of a robust economy and employment market, as well as the low-interest-rate environment, the number of properties put up for sale via auction is expected to stay at a healthy level, with owners’ sale continuing to dominate and mortgagee sale remaining low.
Ms Ng concludes, “The prevailing conducive macro-economic conditions, together with the high liquidity in the market and the popularity of leveraging real estate as an investment to hedge against inflation, will continue to set the stage for keen buying interest at auctions.
Commercial and industrial properties will continue to appeal to investors, on the back of sustained spill-over demand from the residential sector.
Meanwhile, sales of landed properties are expected to pick up in the second half of 2011, as buyers and sellers adjust their respective expectations. Demand for landed properties would be strong due the unyielding desire among Singaporeans to own landed properties in land-scarce Singapore.
We expect to see auction activities in 2H 2011 to turn in between S$70 million and S$80 million worth of transactions. Consequently, the auction property market is most likely to round up the year with a total sales value of some S$140-150 million.”
1. The 14 January 2011 cooling measures on January 14, 2011 included increasing the holding period for imposition of Seller’s Stamp Duty (SSD) from three to four years, and raising the SSD rates of residential properties bought on or after January 14, 2011 and sold in the first, second, third and fourth year of purchase, to 16%, 12%, 8% and 4% of consideration, respectively.
In addition, the Loan-To-Value (LTV) limit was lowered to 50% on housing loans granted by financial institutions regulated by the Monetary Authority of Singapore for property purchasers who are not individuals, and from 70% to 60% for individuals with one or more outstanding housing loans at the time of the new housing purchase.