In a surprise move, the government announced fresh cooling measures on the evening of July 5 just as the Singapore property market was finding a firmer footing - an attempt to quell what was thought to be euphoria in the private residential sector.
To be sure, the market had never quite ruled out the possibility of new measures. The spectre of property curbs loomed as the government had frequently said it would make use of various levers to achieve a more sustainable property market. However, the severity and timing of the measures which took effect on July 6 were largely unexpected.
After all, private home prices have just risen 9.1 per cent over four quarters, after a protracted four-year decline of 11.6 per cent. The new measures stoked concern even among developers who had acquired land before the punitive 15-percentage points increase in the additional buyer's stamp duty (ABSD).
Developers who had bought land before the July 6 measures will be subjected to a clawback of the 15 per cent ABSD remission if they do not build and sell all units in a development within five years of site purchase.
Assuming demand plunges to 2014-2016 levels - where annual developers' private home sales hit around 7,300 units to 8,000 units - the potential supply of 40,000 units could take five years to clear.
Drawing on observation of earlier sites sold in 2016-2017, we estimate that around 15,000 private residential units in more than 54 new projects could be launched over the next six to 12 months.
Developers, who are no strangers to policy changes, could adopt various strategies to navigate the new paradigm.
The pace of new launches as well as the amount of competing supply in the vicinity will likely dictate pricing strategies.
Developers with sites that are in locations with less competing supply from existing projects on the market and new launches, may go ahead with planned launches without any price reset, as demand is deemed to be less price sensitive.
An example is Daintree Residences, whose developer S P Setia is confident of the strong pent-up demand in a locality that has had no new private launches since 2013 (The Creek@Bukit). The project is also in a popular fringe location just off the prime Bukit Timah enclave that has witnessed several high land bids. It sold 46 units at a median price of S$1,716 per square foot (psf) in July.
In locations with stiffer competition, some developers may also feel that withholding launches may not work in their favour in the future. So, they have gone ahead with launching their projects but are quick to adjust pricing to be competitive to move units.
For example, The Tre Ver, which was the second major launch after the cooling measures kicked in, sold about 140 units in the first three days of the project's release in early August at an average price of about S$1,550 psf - about 10 per cent discount to its competitor Park Colonial, which is nearer to the Woodleigh MRT. It also pre-empted an upcoming major competitor, Woodleigh Residences.
Median unit size for new sales in the OCR has clearly trended down from around 900 sq ft in 2011 to around 700 sq ft this year.
The median-price sweet spot for OCR new sales appears to have remained around the S$1 million-mark for some time now, and developers should continue building efficiently sized two- or three-bedders that could fit that budget. Based on an average price of S$1,300 psf for Riverfront Residences, a three-bedroom unit of 872 sq ft would cost S$1.1 million. For RCR, the sweet spot hovers around S$1.2 million which could buy a 700 sq ft two-bedder at S$1,700 psf.
Developers could offer more family-oriented facilities, including more social spaces, BBQ pavilions, and playgrounds. In this aspect, medium-sized to large plots may still be attractive to developers so as to achieve economies of scale.
For the high-end to luxury segments - where demand could be less price sensitive - developers may not need to reconfigure unit sizes, but instead focus on quality and differentiated offerings including generous landscaping, tasteful finishing, and concierge services. Smaller unit sizes could still appeal to well-heeled singles and investors. For future acquisitions, developers of luxury projects may consider small to medium-sized plots to minimise the risk of non-clearance of inventory within the stipulated ABSD deadline.
In addition, developers could use "star buys" or "selective discounts" to sway prospective buyers to commit or decide between two or more competing projects, or to clear less attractive units within a project such as a unit that faces the MRT track directly or is nearest to the main road.
For projects that are completed and delicensed, developers could offer innovative payment options, such as a Deferred Payment Scheme (DPS) or a "Stay-then-Pay" scheme.
Under DPS, buyers are required to make only a small upfront payment, typically 20 per cent of the purchase price, with the rest payable 24 months later. These schemes could appeal to collective sale beneficiaries who want to move in immediately. The 462-unit OUE Twin Peaks - which has since sold out - first rolled out the DPS for its two towers in 2016.
In June 2016, CapitaLand launched its "Stay-then-Pay" programme for two projects - the 1,715-unit d'Leedon and the 1,040-unit The Interlace. Buyers were given a 15 per cent discount and a deferred payment scheme, whereby Singaporeans and permanent residents need to make only a 10 per cent down payment and pay the remaining sum a year later.
The new cooling measures will likely keep a lid on home prices and tame land buying fervour in the short term. Faced with new market realties, developers will have to think on their feet - which is not something they have not done before.
Developers who had bought land before the July 6 measures will be subjected to a clawback of the 15 per cent ABSD remission if they do not build and sell all units in a development within five years of site purchase.
Potential upcoming supply
Land acquisition activity was aggressive over the past year. Colliers estimates that in the first seven months of this year, residential collective sales have hit S$10 billion across 34 deals, bringing the 2016 to July 31, 2018 cumulative total to S$19.2 billion from 64 deals. Including en bloc (single-owner) sites and Government Land Sales (GLS) sites sold, the total number of private homes that could be generated amounts to about 40,000 units.Assuming demand plunges to 2014-2016 levels - where annual developers' private home sales hit around 7,300 units to 8,000 units - the potential supply of 40,000 units could take five years to clear.
Drawing on observation of earlier sites sold in 2016-2017, we estimate that around 15,000 private residential units in more than 54 new projects could be launched over the next six to 12 months.
Developers, who are no strangers to policy changes, could adopt various strategies to navigate the new paradigm.
Competitive analysis
Of the upcoming supply of 15,000 units, over 9,000 units or 62 per cent will be in the city-fringe or Rest of Central Region (RCR), 25 per cent in the suburbs or Outside Central Region (OCR) and 13 per cent in the prime areas or Core Central Region (CCR). District 5 (Pasir Panjang, Buona Vista), District 13 (Woodleigh) and District 14 (Eunos) will account for the bulk of the RCR supply, while most of the upcoming units in OCR will be in District 18 (Tampines).The pace of new launches as well as the amount of competing supply in the vicinity will likely dictate pricing strategies.
Developers with sites that are in locations with less competing supply from existing projects on the market and new launches, may go ahead with planned launches without any price reset, as demand is deemed to be less price sensitive.
An example is Daintree Residences, whose developer S P Setia is confident of the strong pent-up demand in a locality that has had no new private launches since 2013 (The Creek@Bukit). The project is also in a popular fringe location just off the prime Bukit Timah enclave that has witnessed several high land bids. It sold 46 units at a median price of S$1,716 per square foot (psf) in July.
In locations with stiffer competition, some developers may also feel that withholding launches may not work in their favour in the future. So, they have gone ahead with launching their projects but are quick to adjust pricing to be competitive to move units.
For example, The Tre Ver, which was the second major launch after the cooling measures kicked in, sold about 140 units in the first three days of the project's release in early August at an average price of about S$1,550 psf - about 10 per cent discount to its competitor Park Colonial, which is nearer to the Woodleigh MRT. It also pre-empted an upcoming major competitor, Woodleigh Residences.
Recalibrate product and unit mix
With the increased ABSD on investors and foreign buyers, on top of tighter loan-to-value (LTV) limits, the demand base will shrink and likely tilt towards first-timers or upgraders. Offerings may need to be recalibrated to match their needs. These buyers may not necessarily need larger units but would typically require more than a one-bedder to provide for family members.Median unit size for new sales in the OCR has clearly trended down from around 900 sq ft in 2011 to around 700 sq ft this year.
The median-price sweet spot for OCR new sales appears to have remained around the S$1 million-mark for some time now, and developers should continue building efficiently sized two- or three-bedders that could fit that budget. Based on an average price of S$1,300 psf for Riverfront Residences, a three-bedroom unit of 872 sq ft would cost S$1.1 million. For RCR, the sweet spot hovers around S$1.2 million which could buy a 700 sq ft two-bedder at S$1,700 psf.
Developers could offer more family-oriented facilities, including more social spaces, BBQ pavilions, and playgrounds. In this aspect, medium-sized to large plots may still be attractive to developers so as to achieve economies of scale.
For the high-end to luxury segments - where demand could be less price sensitive - developers may not need to reconfigure unit sizes, but instead focus on quality and differentiated offerings including generous landscaping, tasteful finishing, and concierge services. Smaller unit sizes could still appeal to well-heeled singles and investors. For future acquisitions, developers of luxury projects may consider small to medium-sized plots to minimise the risk of non-clearance of inventory within the stipulated ABSD deadline.
Innovative marketing campaigns
In the digital age, developers should maximise exposure and reach out to potential buyers via social media and by providing immersive experiences with videos and virtual show-suites.In addition, developers could use "star buys" or "selective discounts" to sway prospective buyers to commit or decide between two or more competing projects, or to clear less attractive units within a project such as a unit that faces the MRT track directly or is nearest to the main road.
For projects that are completed and delicensed, developers could offer innovative payment options, such as a Deferred Payment Scheme (DPS) or a "Stay-then-Pay" scheme.
Under DPS, buyers are required to make only a small upfront payment, typically 20 per cent of the purchase price, with the rest payable 24 months later. These schemes could appeal to collective sale beneficiaries who want to move in immediately. The 462-unit OUE Twin Peaks - which has since sold out - first rolled out the DPS for its two towers in 2016.
In June 2016, CapitaLand launched its "Stay-then-Pay" programme for two projects - the 1,715-unit d'Leedon and the 1,040-unit The Interlace. Buyers were given a 15 per cent discount and a deferred payment scheme, whereby Singaporeans and permanent residents need to make only a 10 per cent down payment and pay the remaining sum a year later.
The new cooling measures will likely keep a lid on home prices and tame land buying fervour in the short term. Faced with new market realties, developers will have to think on their feet - which is not something they have not done before.