A new dawn for Singapore high-end condos?

A FRESH air of revival seems to have surfaced in Singapore's private residential property market, since the first half of 2017. After more than three years of continuing price declines over 15 quarters, overall private home prices in Singapore are showing gradual signs of bottoming out since the last peak in Q3 2013.

Based on the Urban Redevelopment Authority's (URA) Non-Landed Private Residential Price Indices, island-wide home prices declined marginally by 2.0 per cent year-on-year (y-o-y) in Q2 2017, as compared to a 2.4 per cent y-o-y fall in Q2 2016 and a 3.3 per cent drop y-o-y in Q2 2015.

Delving deeper into the market segments, the moderating price decline is evident only for the mass market segment, where non-landed home prices in the Outside Central Region (OCR) posted a 1.8 per cent y-o-y descent in Q2 2017, against a fall of 3.4 per cent y-o-y in Q2 2016. In contrast, the high-end and mid-tier segments showed stuttering price trends, with non-landed home prices in the Core Central Region (CCR) registering declines of 2.7 per cent y-o-y in Q2 2017, in contrast to just 0.9 per cent y-o-y in Q2 2016. Non-landed home prices in the Rest of Central Region (RCR), on the other hand, reported a 2.1 per cent y-o-y decrease in Q2 2017, after a 1.8 per cent y-o-y drop in Q2 2016.

From a general price trend perspective, the CCR and RCR segments are still not fully out of the woods, amid the deluge of property cooling measures, moderating economic growth and cautious sentiment towards property investment in Singapore.

Against the backdrop of a general mixed-bag price performance of non-landed homes in the aforementioned market segments, green shoots of recovery may be emerging, as evidenced from some key market indicators.

Over the past years, the unsold inventory of private residential units has shaved noticeably by 57.0 per cent to 16,929 units, between Q2 2012 and Q2 2017. In particular, the unsold inventory of non-landed homes in the CCR saw a significant reduction of 58 per cent since its last peak in Q2 2012 to total 5,461 units in Q2 2017, the lowest level since Q3 2016 and constituting 32 per cent of total unsold stock island-wide.

This is juxtaposed with a commendable recovery in the total new sale, subsale and resale transaction volume for the CCR with 1,171 units in Q2 2017, as compared to the quarterly average of 691 units in 2016 (69 per cent higher) and 465 units in 2015. Resale transactions formed 86 per cent of total sales in the CCR, signalling rising interest in value buys in prime districts.

Higher value proposition for Singapore luxury homes

The price performance of the top-end of the residential non-landed segment is another reflection of sentiment among the high-net-worth investor community for destination choices. Based on Knight Frank Research's analysis of the Prime Global Cities Index of key cities around the world, ultra-luxury non-landed homes in Singapore have shown a continuous annual price growth over six quarters since Q1 2016, rising 3.5 per cent y-o-y in Q2 2017.

Notwithstanding the price recovery, Singapore's ultra-luxury non-landed homes still present an attractive value proposition compared to prime homes in other key gateway cities. According to Knight Frank Research's analysis of a basket of ultra-luxury non-landed homes in Singapore's prime districts, the average price works out to be about S$3,100 per sq ft (psf) in Q2 2017 (see Figure 1). In US dollar terms, this is about 31.1 per cent lower than London's average price of US$3,236 psf, and 26.8 per cent lower than Hong Kong's average of US$3,047 psf (see Figure 2).

The attractiveness of a city for property investment can be affected by various policy interventions. Singapore's dose of property cooling measures, from its first rollout in Q3 2009 and over seven subsequent rounds, is now less onerous compared to its key rival city, Hong Kong. To cool Hong Kong's red-hot property market, a series of cooling measures have been implemented since 2010, with the most punitive measure imposed on foreign home buyers and companies amounting to a total of 30 per cent in stamp duties payable for any residential property purchase from April 12, 2017.

While interest in Hong Kong properties remained buoyant despite these measures amid limited supply, property investors, in particular Chinese mainlanders, have been exploring markets outside Hong Kong and China for diversification, children's education and long-term wealth preservation objectives.

Key cities in Australia, such as Sydney and Melbourne, have notably been among choice locations for Asian home buyers. However, residential prices in these cities have escalated considerably in recent years on the back of limited new supply and strong demand, especially among foreign home buyers. With room for growth anticipated in the prime homes segment in Sydney, prices are set to increase by another 7 to 8 per cent over the next year.

Set against an environment of prevalent geopolitical risks and rising prices of prime residential properties in key Asia-Pacific gateway cities, Singapore, widely regarded as a safe haven for its stable economic and political fundamentals, remains on the radar for both individual and corporate property investors. The transparency and comprehensiveness of upcoming development plans, property cooling measures by the government, plus the efficiency to actualise these plans, are strong qualities that Singapore still delivers to instil clarity and confidence in real estate developments and prospects.

Prime districts of choice

Amid the strong expansion of private residential stock island-wide and extension of transport networks, home buyers are presented with more choices beyond the Central Region in Singapore. Yet, the allure of traditional prime districts 9, 10 and 11 remains largely intact given their central location, greater conveniences amid a rich array of amenities and prestigious addresses.

Capturing the opportunity of lower prices since the implementation of the Total Debt Servicing Ratio (TDSR) ruling, transaction volumes of non-landed homes in districts 9, 10 and 11 reached 2,247 units in the first eight months in 2017, translating to 281 units per month. This is 40 per cent higher than in 2016, which registered an average of 201 units per month.

Taking a combination of the three traditionally recognised prime districts with the new prime districts 1, 2 and 4 (Sentosa), total transaction volume for the first half of 2017 was 1,812 units, 43.2 per cent higher compared with H1 2016 of 1,265 units (see Figure 3). Prices have similarly demonstrated upticks across all prime districts, with districts 1, 2 and 4 (Sentosa) exhibiting higher growth on a quarterly basis in July and August of 2017 (see Figure 4).

Prospects for prime districts in CCR

It may be early days to conclude if Singapore's private residential market is slated for a full price recovery by the end of this year, yet there are upside factors to watch, especially in the high-end segment over the medium to long term horizon.

First, consider the limited new supply of high-end non-landed homes in the CCR. The CCR would see a steep fall in the new supply of completed homes after 2018, with the next wave of supply likely to come onstream only after 2021. This includes future completions of high-end projects stemming from a fresh injection of land supply from government land sale (GLS) sites, and private collective sales in 2016 and 2017.

Second, the attribute of freehold tenure of residential properties, which are mainly in the CCR, would be enhanced as the new supply of non-landed homes would be leasehold from GLS sites. Third, the prestige of a home address in the CCR is envisaged to strengthen with upcoming large-scale development plans to create the Greater Southern Waterfront City and constant rejuvenation plans for the Central Area to create a dynamic city centre.

Together with conscientious efforts by government agencies to transform or preserve existing commercial, civic and cultural amenities and coupled with continuing interest from the private sector to own and invest in properties in the CCR, the attractiveness of real estate in the CCR is poised to stay or even elevate along with the evolution of Singapore's real estate landscape. W