A Series of Cooling Measures in the Residential Sector has Led to a Lacklustre Secondary Market and Thinner Interest in the High-end/luxury Market

2012-12-12

The Singapore property auction market concluded the year on a quiet note, with only 24 properties sold out of a total of 377 properties that were put up.  The total sale value chalked up for 2012 is S$62.435 million. 

Not only is this 34.7 per cent lower than the S$95.624 million that was recorded last year, the total sale value is also the lowest in 15 years.  

It is also 54 per cent lower than the total sale value of S$135.7 million that was garnered during the Asian financial crisis in 1998, and 25.4 per cent lower than the S$83.67 million recorded during the global financial crisis in 2008.

Ms Grace Ng (黄黎明), Deputy Managing Director of Colliers International, says, “The decline in the total sale value was due to, among others, the series of cooling measures being implemented by the government in the residential sector – the latest one being effective from October 20121, which resulted in a lacklustre secondary residential market and thinner interest in the high-end/luxury residential market.”

The secondary residential market has been experiencing a stalemate between the buyers and sellers.

Ms Ng continues, “We observe that owners have been reluctant to sell their properties, unless the prices fetched could possibly enable them to make another property investment.  Besides, sellers now have strong holding power due to the prevailing low interest rates, as well as healthy leasing activities seen in the mass residential sector that has enabled them to service their loans. 

Buyers, on the other hand, have also been reluctant to commit to high prices for properties in the secondary market due to a run-up in prices since 2009.  Instead, they have adopted a “wait-and-see” attitude – in the hope for a price adjustment, in view of the continued implementation of the government’s cooling measures, Eurozone crisis and the impending slowdown in GDP growth.”

Additionally, the low sale value at auctions for this year could be attributed to the decrease in the number of high-value transactions – those that are valued S$5 million and above.

Only three of such properties were sold this year for a total of S$25.53 million, which is a drop of 20.4 per cent compared to S$32.06 million registered in 2011.

Nonetheless, these high-value transactions contributed to 40.9 per cent of the total sale value.  The three high-value properties sold this year included a petrol kiosk at Jalan Ahmand Ibrahim that was knocked down at S$12.73 million, a JTC factory at Loyang Way at S$7.1 million and an apartment in Boulevard Residences at S$5.7 million.

Number of Properties Put Up for Sale – Mortgagee versus Owners
A total of 377 properties were put up in 2012.  There were only 24 properties (6.4 per cent) put up for mortgagee sale in 2012, for which the ratio is a record low in 15 years. 

It is encouraging to note that the number of mortgagee sale has been progressively declining since 2004 – the year in which the Singapore property market was in the trough and registered a record number of 2,462 properties that were put up for mortgagee sale. 

Meanwhile, the remaining 353 properties (93.6 per cent) were put up by owners.   The high proportion of owners’ sale suggests that the use of auction sale as a mode of disposal – for various property types, including residential, commercial and industrial, among others – is continuing to gain popularity among owners. 

Sectoral Performance

Residential
On the back of a quiet secondary residential market, 13 residential properties were sold for S$29.725 million at property auctions this year.  Nonetheless, the residential sector still contributed the lion’s share of 47.6 per cent to the total sale value of S$62.435 million.

While there was only one high-value residential transaction this year – an apartment at Boulevard Residences (Orchard Road) that was sold for S$5.7 million, there were still some buyers who seized the opportunity to purchase luxury properties at a good value or those that are situated in prime locations.  

These include a condominium apartment at Sky Eleven (Thomson Road) for S$4.2 million, an apartment at Emerald Hill Road for S$2.035 million and an apartment at Shangai Road (River Valley) for S$1.38 million. 

Meanwhile, landed properties at auctions continued to be sought after, due to the limited supply of such properties in Singapore.  A semi-detached house at Jalan Kelulut was sold for S$2.66 million, while two terrace houses at Thomson Road were knocked down at S$2.21 million and S$2.33 million, respectively.

Retail
Although retail properties are sought after by investors due to their higher yields, the total sale value transacted at auctions this year dropped by 78.8 per cent to only S$8.06 million.

The properties sold included a pair of shophouses at Marine Parade Central and a shophouse unit at Namly Place which were knocked down at S$4.1 million and S$2.78 million, respectively.  2 strata shops at Fortune Centre and People’s Park Centre were sold for S$450,000 and S$730,000, respectively. 

Ms Ng comments, “The subdued sale of retail properties at auctions is due to the higher asking prices from owners in the secondary market; which, in turn, leads to a yield compression to about 4 per cent and below this year, as compared to 5-6 per cent in 2011. 

The reason behind owners’ higher asking price could be attributed to the continued record prices achieved by developers in the primary market for mixed developments – such as Oxley Tower, Bugis Cube and One Dusun, which saw shoebox retail units fetching high average values of above S$4,500 per sq ft. 

Additionally, some investors have found more value investing in other vehicles, such as REITs, which could offer an average yield of between 5 per cent and 7 per cent.”

Industrial
4 industrial properties were sold for a total of S$10.12 million this year.

The highest-value transaction was the S$7.1 million sale of a JTC factory located at Loyang Way.  Meanwhile, three strata factories located at Tradehub21 (Boon Lay), Northlink (Admiralty) and Woodlands East were sold for S$1.5 million, S$1.02million and S$500,000, respectively.

The continued high sale value of industrial properties at auctions is attributed to the investors’ diversion to the commercial and industrial market due to the rigorous cooling measures in the residential market.

Outlook
Ms Ng concludes, “In view of continued liquidity and low interest rates, it is expected that the sellers’ market will persist into the first half of 2013.  Nonetheless, buyers will continue to search for value buys in the auction market, as properties are still considered as a good hedge against the inflation rate which was at a high of 5.2 per cent in 2011 and averaged at 4.7 per cent from January to October this year.   

There will still be strong interest in landed properties, as well as opportunistic purchase of properties that are located in prime areas, such as District 9, 10 and 11.  Meanwhile, if the business environment deteriorates or unemployment rate increases next year, there is a possibility of a higher number of mortgagee sales in 2H 2013.  Some industrial properties may emerge as mortgagee sale, when more small-and-medium-enterprises face the pressure of rising costs and a challenging business environment. 

Taking the above factors into consideration, sale value at property auctions in 2013 is expected to total to approximately S$70 million.”   

Notes:
1. The latest round of cooling measure involved mortgage curbs introduced by the Monetary Authority of Singapore (MAS). Effective from 6 October, a maximum loan tenure capped at 35 years for all new residential property loans (for both private properties and HDB flats) was imposed. This will apply to both new and refinancing loans. In addition, loans exceeding 30 years tenure will face significantly tighter loan-to-value (LTV) limits. For loans whose tenures exceed 30 years or extend beyond the retirement age of 65 years, the LTV limit will be 40% for an individual borrower with more than one outstanding residential property loan (down from 60%) and 60% for a borrower without an outstanding residential property loan (down from 80%).