You are here
Mass-market private homes maintain appeal amid pandemic
DESPITE the pandemic-led economic downturn, the Singapore private residential sector - particularly the mass market and even the mid-tier segment - has displayed strong resilience, thanks to robust local end-user demand and Housing Development Board (HDB) upgraders.
Against the backdrop of economic uncertainties and pandemic lockdown measures, home sales sputtered in Q2 2020, but roared back to life in the third quarter. Overall private home sales surged by
164.5 per cent to 7,047 units from Q2 to Q3 2020.
The recent strong sales and resilient prices may appear at odds with the gloomy economic outlook, but a closer look suggests that there are solid demand drivers at work, including the pent-up home buying interest and low borrowing cost. A key factor that has underpinned home sales is probably the track record of the private home market itself.
PROVEN TRACK RECORD
In the past decades, the property market has overcome challenging times - including the Asian Financial Crisis, the severe acute respiratory syndrome (Sars) outbreak, global financial crisis (GFC) - and emerged stronger after each crisis.
Private home prices have collectively risen by 276 per cent from Q1 1990 to Q3 2020, showed the Urban Redevelopment Authority's private residential property price index.
The prospect of long-term capital value growth and wealth preservation has perhaps given buyers a measure of confidence to enter the market despite the ongoing global pandemic.
Several factors such as the low interest rate environment, debt moratorium programme, and government support measures to preserve jobs have also strengthened holding power among home owners and helped to keep home prices stable amid the current economic downturn.
MASS MARKET APPEAL
The mass market or outside central region (OCR) segment, in particular, has performed well despite a lack of major new project launches this year.
In the first nine months of 2020, there were a total of 13,980 private home transactions, of which 6,565 or 47 per cent were in the OCR. This proportion is fairly consistent with figures from previous years, with mass-market homes generally accounting for almost half of the overall annual sales.
Meanwhile, the rest of central region (RCR) and core central region (CCR) had 4,959 and 2,456 transactions respectively in the first nine months of this year.
A key reason why the OCR tends to lead sales lies in its relatively more affordable price-point compared with that of the city fringe or the prime central districts. Homes in the OCR are typically seen as an entry point into the private residential property market. This sub-market also appeals to a larger pool of buyers and generally sees relatively higher sale transactions than the RCR and CCR.
An analysis of Realis data showed that average transacted price of new non-landed homes in the OCR has crept up by 3.6 per cent to S$1,516 per square foot (psf) from January to September 2020.
While average prices tend to fluctuate from month to month depending on the types of units sold, the general trend showed that OCR prices seem more stable with a slight upward bias.
By overall quantum, a price tag of S$1.5 million and below remains the pricing sweet spot for OCR non-landed homes. In the first nine months of 2020, 79.8 per cent of new mass-market homes sold by developers fell in that price range, showed Realis data as at Oct 26, 2020.
OWNER OCCUPIERS AND HDB UPGRADERS
The more affordable pricing of OCR homes made them a popular choice among HDB owners looking to upgrade to private residential properties.
This group of buyers has entered the private residential market, with many flats becoming eligible for resale recently by obtaining their five-year minimum occupation period (MOP). There are an estimated 24,163 HDB flats reaching their MOP in 2020 and another 25,530 flats in 2021, which make them eligible to be resold.
In addition, the stabilisation and growth of HDB resale prices - as tracked by the HDB Resale Price Index - after years of muted price performance may encourage some owners to sell their flat and switch to a private home. Prices of resale HDB flats rose by 1.5 per cent from Q2 to Q3 2020, marking the largest quarterly increase in over seven years, since the 1.3 per cent growth recorded in Q1 2013.
With a sizeable demand pool of owner occupiers and HDB upgraders, sales of mass-market condos are expected to remain healthy.
Despite a lack of major fresh launches in the OCR this year, developers notched sales of 3,024 new units in this sub-market in the first nine months of 2020, accounting for 41 per cent of total new home sales during the period. This is partly thanks to steady sales at previously launched projects such as Treasure At Tampines, Parc Clematis, and The Florence Residences, which were among the bestselling projects this year.
The strong demand for private homes in the suburbs has helped to support OCR home values, lending resilience to prices through market cycles.
Since the last round of property curbs was introduced in July 2018, non-landed private home prices in the OCR grew at a faster clip of 6.4 per cent from Q3 2018 to Q3 2020, compared with the 4.9 per cent increase in the RCR and a 6 per cent decline in the CCR over the same period.
During the GFC and the subsequent market recovery, OCR prices also held up better, rising by 4.6 per cent from Q1 2008 to Q4 2009. In contrast, RCR prices fell by nearly 5 per cent, and home values in the CCR declined by 10.7 per cent.
The supply of mass-market homes is expected to remain tight given the quiet collective sale market and moderate supply of private homes from confirmed sites under the Government Land Sales programme.
In addition, many mega projects in the OCR have also been selling units at a steady clip.
Treasure At Tampines has sold nearly 72 per cent of its 2,203 units, while Parc Clematis and The Florence Residences are more than 65 per cent sold to date.
PropNex's analysis of the supply and demand patterns suggests that there could be a greater imbalance in the OCR, where a larger demand pool has helped to absorb supply in the mass market.
The OCR made up 41 per cent of total new homes sold in the first nine months of 2020, but its share of unsold supply was just 32.3 per cent of the total unsold stock of 26,483 units at the end of Q3 2020. Demand has seemingly outpaced supply in the RCR as well, but it looks to be less pronounced than in the OCR.
Given the tight supply in the OCR, prices of mass-market homes should remain relatively firm over the next year, barring any unforeseen events.
- The writer is chief executive officer of PropNex