Rising risks in home prices; waterfront living

SOME fizz is coming off Singapore’s residential property market. 

Developers sold 217 private homes in Singapore in September, down 44.9 per cent from the 394 units moved in August, according to data released by the Urban Redevelopment Authority. 

The latest September sales figure – which excludes executive condominiums – is also less than a quarter of the 987 units sold in the same month in 2022, and is the lowest since December 2022.

With higher borrowing costs, widespread inflation, and economic uncertainty, analysts expect buyers to be cautious and new private home sales for 2023 to be below that of 2022.

In the Housing and Development Board (HDB) resale market, consultancy OrangeTee & Tie said that there was a dip in quarter-on-quarter price change in 10 out of the 26 HDB towns in Q3, compared with six towns in Q2.

Still, there is strength at the premium end of the HDB resale market. OrangeTee said 128 resale flats were sold for at least a million dollars in Q3, versus 111 units in the same quarter in 2022. 

With 336 million-dollar deals in the first nine months of this year, OrangeTee expects the number of HDB resale flats transacted for at least a million dollars in 2023 to exceed last year’s high of 369 units.

Only four towns have not seen a million-dollar flat transaction. Sengkang could possibly see a million-dollar flat transaction soon, notes OrangeTee.

Paying top dollar for a sought-after HDB resale home can be easily justified as such homes are substantially cheaper than comparable leasehold condominium units.

Moreover, some buyers might plumb for existing sought-after HDB resale flats because these flats come with fewer restrictions versus HDB flats that will be built in future in choice locations, which will be classified as Prime or Plus units.

However, I argue in The Level Ground that it is wise not to go overboard in pursuing existing popular HDB resale homes.  

There is the risk of land lease decay for HDB resale homes as the number of years of land lease outstanding runs down. 

Also, going forward, retirees who are recycling proceeds from selling a private home may find resale Prime or Plus flats offer a better value proposition versus some existing well-located HDB flats.

Speaking of HDB homes, buyers can look forward to homes with waterfront views at the new Bayshore estate. 

The master plan for this estate, which is bounded by Upper East Coast Road, Bayshore Road and East Coast Parkway, was unveiled on Oct 16.

The new Bayshore estate is being built on reclaimed land and is an extension of Bedok town. It is envisioned to be car-lite. 

The estate will house around 10,000 homes when completed. About 70 per cent of the housing units will be for public housing and the remaining for private homes. 

The first Build-to-Order flats in Bayshore, comprising 1,400 units, will be launched in 2024 and these are likely to fall under the Plus category for new flats.

Meanwhile, the first residential plot of land in post-independence Singapore which reached the end of its lease is being readied for a public housing development as part of rejuvenation efforts in Kallang. Analysts expect the site along Upper Boon Keng Road to yield between 200 and 400 homes.

Investors are keeping a keen eye on the impact of higher financing costs and operational resilience, as Singapore-listed real estate investment trusts report results and business updates for the period ended September.

Keppel DC Reit, which focuses on data centres, reported a 3.6 per cent fall in distribution per unit for Q3 on the back of higher finance costs and less favourable foreign exchange hedges.

Analysts are bullish on hospitality trusts, with outperformance expected from Singapore-focused names such as Far East Hospitality Trust and CDL Hospitality Trusts.

Property developer Tuan Sing Holdings may be hoping to cash in on the strong prospects for Singapore’s hospitality sector.  

The group said it may turn its headquarters at The Oxley, which is located along Oxley Rise, into a hotel or serviced residence.

Tuan Sing is also looking to turn its Bukit Timah area properties Link@896 and the site next to it into a hotel or serviced residence.

Might more building owners here be eyeing converting non-hospitality assets into hospitality ones for better returns? 

Singapore’s property market across different asset classes has generally performed well post-pandemic. This is unlike the case in many overseas markets, where higher interest rates are affecting property valuations and buying sentiment.

Frasers Property Limited expects to report a significant drop in attributable profit for financial year ended Sep 30 due to expected fair-value losses on some of its investment properties in the United Kingdom (UK) and Europe.

Broker Hamptons International said landlords in the UK paid 40 per cent more mortgage interest in August than the same month a year ago. Cost pressure faced by landlords might lead to higher rents for tenants or landlords exiting the leasing market.

In Hong Kong, homes prices could continue to fall in 2023 and 2024 according to Morgan Stanley. The bank blamed stretched affordability, an increase in land supply, negative rental carry – where costs exceed income – and a weakening in sentiment against a backdrop of an equity market heading for a fourth straight annual decline.

In Germany, a sharp rise in interest rates is tipping developers into insolvency as deals freeze and prices fall. German Chancellor Olaf Scholz is facing fresh demands to stem a property crisis in Europe’s largest economy from the ailing building industry, according to a report by Reuters.

Later this month, there will be a hearing for China Evergrande Group in a Hong Kong insolvency court, which could lay bare the once-unthinkable possibility of liquidating the property developer’s assets.