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Demand for mass market condos expected to continue
THE first half of the year saw financial markets across the globe rallying in response to hopes of a trade war resolution between the US and China, as well as a halt in the interest rate hike by the US Federal Reserve. Whilst a US-China trade truce was agreed for the time being after the June 2019 G-20 summit, trade tensions and regional geopolitical frictions may remain as the principal drivers of the global economy for the rest of the year.
Advisers around the world have generally recommended a more defensive investing stance and preference for a conservative portfolio in case of a market correction or recessionary risk. Many investors have already begun rebalancing their mix of assets - potentially transferring funds from more volatile capital markets to safer investment alternatives like property. This may explain why some foreign buyers have been streaming steadily back into Singapore's property market and many luxury homes have been snapped up by well-heeled investors.
Singapore has long been regarded as an attractive investment destination and safe-haven given our political stability, positive economic growth, market transparency, effective legal system, and strong currency. Therefore, our property market may continue to thrive in the face of the current economic uncertainties and global market volatility.
Singapore's property home prices have been rising steadily, weathering some of the toughest economic challenges and regulatory curbs. Over the last three decades, private property prices have risen 260.8 per cent from Q2 1990 to Q2 2019, according to data from the Urban Redevelopment Authority (URA).
Despite the slew of property measures introduced in recent years, prices of non-landed private homes have continued to rise across the board. Mass market condominium prices in the Outside Central Region (OCR) rose the fastest at 9.7 per cent from Q2 2016 to Q2 2019, while those in the city centre (Core Central Region - CCR) and city fringe (Rest of Central Region - RCR) increased 4.6 per cent and 9.1 per cent respectively.
Given the spate of record-setting land sales transacted last year, more mass-market condominiums were sold at higher price tags recently. An analysis of URA Realis data showed that 13.1 per cent or 117 resale mass market condominiums were transacted above S$1,300 per sq foot (psf) last quarter as opposed to none being transacted 10 years ago. Of the 117 resale transactions, 16.2 per cent or 19 units were sold for more than S$1,500 psf but under S$2,000 psf.
New project launches have also shattered previous price records. Last quarter, 52 new mass market homes breached the S$1,800 psf mark while 28 sales soared past S$2,000 psf. The mass market homes that were sold for more than S$2,000 psf were freehold units at The Gazania and The Lilium, and the 99-year leasehold units at Seaside Residences in Siglap which command breathtaking sea views at the eastern part of the island.
While higher per sq foot prices are usually driven by small-format units, not all condominiums sold above S$2,000 psf last quarter were small units. More than half of the 28 units were fairly large-sized condominiums that were 82 to 161 sq m transacted at S$1.8 million to S$3.7 million each. This indicates that deep-pocketed buyers are now willing to shell out extra for premium mass market condominiums.
Attractive capital appreciation
The attractive capital appreciation of mass market condominiums may have sustained buying interest for these homes. Looking purely at data caveats from URA's Realis website, more than 90 per cent of mass market leasehold condominiums bought directly from developers and resold over the past 10 years have fetched an average gross profit of about S$160,000 after taking into account the Seller's Stamp Duty (SSD). The average holding period for these properties is about 4.5 years.
The gains and losses of individual units were calculated by matching URA Realis new sale caveats in OCR between 2009 and 2018 to the resale caveat (if any) of the same unit over the same time frame. The calculation takes into account the SSD but does not consider other costs such as legal fees, interest, and the additional buyer's stamp duty (ABSD).
As at July 24, 2019, there were 7,068 matched caveats mined from the database. Out of this number, 92.5 per cent or 6,537 units made gross profits averaging S$157,680 after SSD. 531 units or 7.5 per cent made losses averaging S$58,590. Of those that made profit, the majority resold their units between four and seven years, which is after the period when SSD would be applicable.
From the total matched caveats, 192 mass market leasehold condominiums made a gross profit of S$500,000 and above after SSD. The highest profit recorded was S$1.004 million for a 10th floor unit at Kovan Residences that was bought in April 2009 for S$1.214 million and resold for S$2.218 million in August 2018. Another seven units at the same project also made more than S$700,000 gross profit.
Many units at projects such as Double Bay Residences, Optima @ Tanah Merah and Waterfront Waves in the eastern part of the island were resold for more than S$500,000 gross profits. Most of these units were bought in 2009 when home prices were at a low after the 2007-2008 global financial crisis.
In recent years (2014 to 2018), three units at Coco Palms in Pasir Ris Grove made gross profit after SSD of between S$350,000 and $440,000 with an average holding period of around four years. Other units at High Park Residences, Riverbank@Fernvale, The Panorama and Lakeville had similarly made more than S$300,000 gross profit over the same period. The profit as a percentage of purchase price was at a relatively high of between 18.9 per cent and 34.1 per cent for these units.
Dwindling supply in two years
While there have been concerns about the increasing supply of project launches this year, the supply of mass market homes is poised to fall significantly in two years' time since the number of successful collective sales has been reduced drastically after the cooling measures. The government has also cut the supply of private residential homes from confirmed sites under the Government Land Sales programme. Given the attractive capital appreciation and potential supply crunch, we foresee that prices of mass market condominiums may continue to be sustained in the next few years.
- Christine Sun is the head of research & consultancy, and John Tay senior research analyst at OrangeTee & Tie