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Factors behind success of new property launches

Post-July 2018's cooling measures, buyers are carefully considering a project's relative pricing and risk mitigation before they finally make their choice.

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Freehold condominium Amber Park in District 15 sold a total of 115 units at an average price of approximately S$2,425 psf during its launch weekend in H1 2019.

BEFORE the latest round of cooling measures was introduced in July 2018, the outlook of the property market had been buoyant, with private residential prices increasing by 7.4 per cent from Q4 2017 to Q2 2018. Singaporean buyers, especially those who enjoyed windfall gains from collective sales, were purchasing second properties, even as foreign buyers too invested in properties here due to its upside in value and other attributes, as compared to similar properties in other gateway cities.

However, last July's cooling measures changed the entire market dynamic, as the cost of acquiring an investment property became more expensive. Based on the latest Additional Buyer's Stamp Duty (ABSD), buyers purchasing a second home that costs S$1.5 million would now have to incur S$224,600 in stamp duties, as compared to the S$144,600 payable prior to the guideline changes.

On top of stamp duties, buyers are now also only able to take up smaller loans and must top up 5 per cent in cash payment, unless they have sufficient CPF savings in the pocket. With the higher costs of acquisition, Singapore properties are now less appealing to investors.

For upgraders, or buyers looking to sell their HDB flats in favour of private properties, challenges abound under current market conditions. For example, those owning flats carrying shorter remaining leases of less than 60 years may take a longer time to sell their HDB flats on the resale market.

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Despite being unencumbered by higher stamp duties and the higher equity outlay, even first-time buyers of private properties are not spared, amid concerns that property prices will correct. The anticipated decline in residential property prices has also widened the gap in price expectations. Data (as at Aug 8) from the Urban Redevelopment Authority (URA) has shown that only 8,225 private residential homes transacted in H1 2019, less than the 12,475 units transacted in H1 2018.

Despite prices showing an uptick in Q2 2019, the slight improvement is likely to have emanated from the sales of the newly launched projects, properties in areas earmarked for future development, or for properties close to recently announced MRT stations.

The uncertain external environment and plethora of new launches have also made it more challenging for developers to complete sales of their developments within the stipulated 5-year period, before the ABSD kicks in. Notwithstanding, some projects have continued to perform well, post cooling measures. The success of these projects can be broadly attributed to the following factors: relative pricing, and risk mitigation.

Relative pricing

Today's buyers have become more discerning and will compare prices and attributes across shortlisted projects they have been eyeing. Some launches are even priced to sell, such as Treasure at Tampines. The median price of units sold was about S$1,280 per sq ft when the development launched in March 2019, lower than the median unit price of S$1,378 per sq ft of similar new sales launches within the same planning area, from August 2018 to February 2019. Treasure at Tampines eventually sold 272 units on its launch weekend in March 2019.

In the same vein, prices for one-bedroom and studio apartments at the newly launched One Pearl Bank were similar to further projects of the same built, despite the development being closer to the Central Business District (CBD). During One Pearl Bank's launch weekend on July 20 and 21, 2019, 160 units were sold. Its underlying success appears to be less its affordable pricing, overall quantum or unit price, but rather how it matches up against its contemporaries and how prospective buyers have framed their price expectations.

The price expectations of buyers with the purchasing power for high-end projects appear to be framed differently, as they are more mobile and have assets in other gateway cities or countries. Therefore, the willingness to pay for a high-quality product of good design and exclusivity is greater. Singapore, with its high security and stable political environment, continues to appeal to high net worth individuals, particularly in the light of ongoing economic uncertainties. Luxury development Boulevard 88 in prime Orchard Road sold 20 of its 154 units during previews, despite its high price tag and average price of S$3,550 per sq ft.

Risk mitigating factors

Given the external uncertainties, more buyers will likely gravitate towards freehold projects, or projects located in districts earmarked for growth, as a form of risk mitigation. While property prices may fluctuate in tandem with economic growth, prices of freehold properties in areas that are planned for future development are perceived to be more resilient and hold the likelihood of a quicker rebound when the economy improves.

Freehold projects in District 15 have generally done well, given its proximity to the CBD, mass availability of amenities in the area and the many planned upcoming MRT stations. A notable project which performed well in H1 2019 was Amber Park, a freehold project within proximity to good schools, the future Tanjong Katong MRT station, as well as popular leisure and fitness spot, East Coast Park. Amber Park eventually sold a total of 115 units at an average price of approximately S$2,425 psf during its launch weekend.

Likewise, another recent, well-performing project was Sky Everton, which sold 102 units at an average price of S$2,550 psf. One of the few freehold developments in District 1, it is near the upcoming Greater Southern Waterfront development and close to Prince Edward MRT station.

Balancing sales and potential upturn

Even as developers focus on driving project sales, there runs the danger of the Winners' Curse. Ironically, a development that sells too well, or even all of its units, points towards the possibility of the project being under-priced. At a more strategic level, it is less optimal for developers to sell more under current market conditions, as sales slow and demand grows more price elastic. Rather, the optimal strategy is to meet sales targets to maintain existing cashflow and sell more when the market is on an upturn, increasing prices in tandem with rising demand.

Moving forward, sales are expected to progressively improve till H1 2020. Purchases from foreign buyers are likely to increase, as Singapore's world class education and stable political and economic environment appeal to foreigners despite the high ABSD. Should prices remain stable over the course of the next year, more local buyers may also be incentivised to return to the market.

  • The writer is the head of research at Knight Frank Singapore