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City, non-city condo price gap narrows
THE price gaps for resale private condos in the city area versus those in the city fringe and suburbs have been narrowing since the market started softening in late 2011, a HSR report released yesterday said.
The gap in median prices between the Core Central Region (CCR) and Rest of Central Region (RCR) reached a high of S$610 psf in Q4 2011, but this gap has fallen to S$461 psf in the second quarter this year.
Similarly, between median prices in the city and the Outside Central Region (OCR), the price gap has fallen from a high of S$870 psf to S$712 psf over the same period.
This came as no surprise to property consultants.
"The narrowing price gap is basically due to the impact of successive rounds of cooling measures which had a stronger impact on high-end homes, compared to other regions," said SLP International executive director Nicholas Mak.
DTZ's South-east Asia regional head of research, Lee Lay Keng, added: "It's quite obvious that the price drop for CCR was just after the additional buyer's stamp duty (ABSD) was introduced in Q4 2011. "Prices in OCR and RCR continued to go up even after ABSD took effect. The new launches did quite well, and Singaporeans and PRs continued buying in these regions, which could explain why prices in these areas held up better - that is, until the TDSR (total debt servicing ratio) kicked in from July 2013."
The TDSR framework caps borrowers' total monthly debt at 60 per cent of their gross monthly income to encourage financial prudence.
Ku Swee Yong, chief executive of Century 21 Singapore and the KEO of International Property Advisor, said some HDB upgraders could afford to pay more for OCR condos in 2012 and 2013 because they were using profit from reselling their public flats. "HDB resale prices went up 100 per cent between 2007 and 2013," he said.
Meanwhile, the "punitive" ABSD policy impacted foreigners the hardest, at first requiring them to pay 10 per cent stamp duties on any residential property they buy, and now 15 per cent.
"It is artificial. In a normal market without these policy measures coming into play, we wouldn't have this shrinking price gap," he said.
HSR's research found that since 2007, foreign buyers have made up an average of 47 per cent of yearly transactions in the city area, compared to 34 per cent in the city fringe and 31 per cent in the suburbs. The city area houses the largest proportion of freehold investment grade properties.
"At the peak of the gap in Q4 2011, non-Singaporeans represented 61 per cent of the total secondary transactions for non-landed properties in CCR, compared to 35 per cent in Q1 2014," it said.
Its regression analysis also found a high correlation between the percentage of foreign buyers and the price gaps between CCR versus RCR/OCR. "In other words, the higher the percentage of non-Singaporean buyers, the higher the gap is," it said.
Bernard Tong, HSR's head of operations, said it is likely that foreigners are more willing to pay more, and are less sensitive to prices, when buying homes in premium city locations for accessibility and proximity to the business district.
HSR expects the gap to keep shrinking by another S$50-S$100 psf as property prices continue to fall. But other analysts say that the price gap cannot keep narrowing.
Mr Mak said: "Chances are it will continue to narrow for the next six to 12 months, but there will be a natural resistance against narrowing any further, especially between prices in CCR and OCR.
"It's like magnets of like poles; prices in the city fringe and suburbs cannot get too close to city condo prices. It will come to a point where it doesn't make sense, where the owners of CCR homes won't want to lower prices anymore. Meanwhile, TDSR will be crucial in preventing OCR prices from rising too much, because buyers of OCR condos tend more to be owner occupiers and are not that cash rich."
Asked if the fact that prices of city condos falling faster than other regions will drive buyers to city fringe and suburban condos instead, DTZ's Ms Lee replied that it can cut both ways.
"If it will already cost me this amount to buy an OCR/RCR condo, why not spend a bit more to buy a CCR condo if I can afford it? It really depends on the buyer's profile and intentions. Not everyone buys for investment."
(The full research report is available on BTInvest http://www.btinvest.com.sg/property/).