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Will mass-market condos yield expected returns for buyers?

Driven by the perception that prices could be close to the bottom, buyers have been flocking back to the market.

SO far, 2017 has been a remarkable year for the private residential market, as signs of a recovery have become clearer with a robust run-up in transactions and prices showing signs of bottoming out. Buying activity in suburban areas, where units are more affordable, has led the transaction recovery. But a question has also arisen as to whether buyers can yield their expected returns.

The total transaction volume of private homes in the first half of 2017 was 12,107 units, a 63.7 per cent surge from the first half of 2016 and the highest half-year volume since the first half of 2013 before the Total Debt Servicing Ratio was imposed. It builds on the momentum in 2016 when 16,378 units were sold, 16 per cent higher than the previous year.

The decline in the URA private residential property price index has been moderating, easing from a 0.5 per cent fall in Q4 2016, to 0.4 per cent in Q1 2017 and to 0.1 per cent in Q2 2017. Driven by the perception that prices could be close to the bottom, buyers have been flocking back to the market, exacerbated by pent-up demand from the last few years.


Among the three sub-markets, it is the mass market or Outside Central Region (OCR) that is leading the upswing in transactions. There were 6,499 units in the OCR sold in the first half of 2017, 77.8 per cent higher than in the first half of 2016, while the Core Central Region (CCR) and the Rest of Central Region (RCR) posted transaction volume increases of 40.6 per cent and 55.1 per cent, respectively, for the same period. The OCR sub-market, with a relatively higher proportion of owner-occupier and local purchasers, would be less hamstrung by the cooling measures that affect investor and foreign buyers more significantly, especially in the CCR.

In a market that is price-sensitive, OCR properties hold the advantage of being the most affordable among the three sub-markets. The median price of non-landed homes in the OCR in the first half of 2017 at S$1,187 per sq ft is 37 per cent and 20 per cent lower than that of the CCR and the RCR, respectively.

Most primary market opportunities for buyers are in the OCR where 3,076 units were launched for sale in the first half of 2017, accounting for nearly 78 per cent of the total launched supply from the three sub-markets. In general, major projects launched in the OCR have performed well in attracting buyers and achieving good take-up rates. The positive publicity generated would stoke market optimism further, attracting more buyers and sustaining the demand upswing.


Weighed down by the cooling measures, the private residential market started to slow in the second half of 2013, with transaction volume falling significantly and prices starting to ease. To adjust to the lower level of demand and to avoid over-supplying the market, government land sales (GLS) planned supply of private homes under the confirmed list was trimmed from an average of 9,400 units per annum between 2011 and 2013 to an average of 3,800 units per annum between 2014 and 2016.

The unsold stock comprising unsold units in completed and uncompleted projects fell by half, from 33,915 units in Q2 2013 to 16,929 in Q2 2017, reducing the risk of a severe oversupply. However, the unsold stock of private residential units in the OCR has dropped to 5,956 units in the second half of 2017, about half of what it was three years ago.

It is a relatively low level, considering 3,732 units were sold in the OCR primary market in the first half of 2017. Of the 5,956 unsold units, 500 units are in completed developments, 1,416 have been launched and are unsold, 1,968 have sales pre-requisites but not launched and 2,072 units are without pre-requisites for sale and unsold.

Therefore, 1,916 units are immediately available to buyers while 1,968 units could be available in the near-term if they are launched. The immediate and near-term supply of 3,884 units provides an uneasy balance against the current level of demand, which was at 3,732 units in the first half of the year. The 2,072 units without pre-requisites for sale and unsold also appear to be an inadequate feeder to the launch pipeline.

Recent GLS supply from awarded sites has been low key and is unlikely to boost feeder supply for launches significantly. The supply from the second half of 2017 GLS programme would enter the market in late 2018 at the earliest or in 2019. There will also be a time lag for the new supply from recent residential collective sales in the OCR to hit the market. These conditions favour prices in the OCR sub-market stabilising and turning around if current demand trends continue.

According to the NUS-Redas real estate sentiment index for Q2 2017, 45.7 per cent of the developers anticipated residential property unit prices to increase moderately in the next six months.


While cooling measures tempered demand during the market escalation after the global financial crisis, residential GLS was increased significantly, especially between 2011 and 2013, to step up the supply. This contributed to a record level of private home completions from 2014 to 2016, averaging 19,905 units per annum, a huge jump from the 10-year average of 10,049 units between 2004 and 2013. Most new home completions were in the OCR, which saw its total stock increase 26 per cent from mid-2014 to mid-2017, while the CCR and the RCR registered rises of 13 per cent and 15 per cent, respectively, for the same period.

The strong increase in OCR supply also coincided with the general downsizing trend in the market as developers endeavoured to keep units affordable while demand was being squeezed by the cooling measures. In 2009, the median size of non-landed private homes sold in the OCR primary market was 1,238 sq ft, but from 2010 onwards, it started to decrease, reducing to 764 sq ft in 2016. The proliferation of smaller-sized units made them affordable, especially to investors with a limited budget.

Increased investment activity in the OCR has led to a higher supply of units for lease, which coincided with an economic slowdown and policy tightening on the hiring of foreign labour. In 2013, the overall leasing market recorded 56,773 rental contracts, which increased to 75,731 in 2016. However, part of the increase is due to the trend of signing shorter lease terms by foreign staff as they faced greater employment uncertainties.

The OCR's share of total rental contracts was 31.1 per cent in 2013 but it increased to 36.7 per cent in 2016. The increase in rental contracts in the OCR belies weak leasing conditions, which is reflected in the decline in rents. Between its peak in Q2 2013 and Q2 2017, the URA's rental index for the OCR dropped 15.6 per cent, more than the declines of 8.7 per cent in the RCR and 11.5 per cent in the CCR from their respective peaks in 2014 and 2013.

So, while the OCR sub-market has provided affordable investment opportunities, realising reasonable returns has been more challenging. It is a highly competitive market due to the sheer number of units available for lease and tenants who tend to be budget constrained. Investors should do well to consider units with strong attributes, such as proximity to a transportation hub or MRT station, shopping and eating amenities and employment hubs. It is easy to fall into the affordability trap without an adequate assessment of how well the unit would lease.

  • The writer is national director for research and consultancy at JLL Singapore

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