Every cloud has a silver lining. The new cooling measures rolled out by the Singapore government in July 2018 have dealt greater uncertainty to real estate developers, but they will also bring about what we feel would be a more sustainable property market in the medium- to long-term.
Ultimately, a stable property market supported by strong economic fundamentals will benefit all stakeholders in the real estate sector by preserving home values, maintaining affordability, and creating housing demand.
Price resilience in Core Central Region
Truth be told, the immediate impact of the new curbs on the property prices has been relatively measured. In particular, home values in the Core Central Region (CCR) held firm in Q3 2018, reflecting the segment’s resilience and their appeal as trophy assets.
Flash estimates from the Urban Redevelopment Authority on October 01 showed that prices of non-landed homes in CCR rose by 1.2% in Q3, following a 0.9% growth in Q2. The CCR was the only region that saw a higher sequential price growth in Q3, supported by prices at luxury residential developments such as 8 Saint Thomas, Wallich Residences, New Futura and Martin Modern. This attests to our belief that properties in prime districts – especially Districts 9 and 10 – are in a better position to weather any potential slowdown in the market.
While developers evaluate a multitude of factors in their land acquisition and pricing strategies, the CCR’s firmer pricing outlook could be a prime motivator in charting their development plans.
High-end supply pipeline measured
Based on observation of earlier sites sold in 2016-2017, Colliers Research estimates that around 15,000 private residential units could be launched over the next 6 to 12 months. Of these 15,000 units, just 13% of them are located in the CCR – not quite a supply glut in our view. If these project launches are well-paced, we do not think developers have to cut prices drastically to move units.
In contrast, home prices could likely face more headwinds in other planning regions amid a more competitive landscape. About 62% of the anticipated upcoming supply is expected to be in the Rest of Central Region (RCR) and 25% in the Outside Central Region (OCR), according to Colliers’ analysis.
Foreign demand fairly steady
Demand - the other side of the market dynamics – also has upside potential in the future as Singapore continues to be an attractive investment destination for foreign investors vis-à-vis other comparable markets in Asia.
Luxury homes in Singapore remain relatively affordable when compared against those in Hong Kong and Shanghai where home values have escalated significantly in the past years. A Bloomberg article last month reported that China’s home prices rose at the fastest pace in almost two years in August, adding to the likelihood of more government tightening in the housing market.
In Hong Kong, although home prices posted the first dip in 29 months in August, they are still at elevated levels. In fact, the latest UBS Global Real Estate Bubble Index published on September 27 ranked Hong Kong as the city with the greatest bubble risk with a score of 2.03. Singapore, meanwhile, was rated as ‘fair-valued’ with a score of 0.44.
The more stable property market in Singapore, along with its transparent legal framework and processes make the city-state appealing to foreigners. Despite the higher additional buyer’s stamp duty (ABSD) levied on the purchase of residential property by foreigners, demand did not dry up.
Colliers’ research found that foreign buyers still made up 4.2% of total residential transactions in August - a shade lower than the 6% recorded in July. It is important to note that most of the pullback in foreign buying was in suburban locations, while demand as a proportion of total stock in prime areas has been fairly steady.
Local demand drivers
Apart from foreign demand, we think the pro-home ownership sentiment – particularly the widely-held aspirations for private property ownership - among the local population will continue to support housing demand in the years to come.
We think the Singapore government’s proactive efforts to transform the economy and brighter economic outlook also auger well for the property sector on various fronts. Firstly, the move to revamp industries via greater innovation and technology push could bring in new foreign talent to boost tech sector workforce, who will need housing options.
Second, a stable and vibrant economy will be appealing to multinational corporations that are looking to set up a regional headquarters to tap opportunities in Asia or ASEAN. Rising optimism among businesses could lead to expansion, providing more and/or better jobs for Singaporeans.
And finally, we believe the policy makers’ focus on upskilling and retraining programmes for workers will help to extend their employability. And job security, as we all know, is a key factor in home purchase.
Taken together, we think the resilience in luxury home prices in Singapore, their relative affordability compared with key Asian cities, favourable environment for foreign and domestic buyers, as well as stable economic outlook – barring any major external shocks – will continue to make a case for the acquisition of prime residential sites in the central parts of Singapore.