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COMMENTARY: SINGAPORE PROPERTY

URA's revised guidelines a cooling measure not by design?

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Is the Urban Redevelopment Authority's Wednesday announcement to raise the minimum average unit size for non-landed housing developments Outside the Central Area (OCA) - the second part to the July 6 property cooling measures?

Singapore

IS the Urban Redevelopment Authority's Wednesday announcement to raise the minimum average unit size for non-landed housing developments Outside the Central Area (OCA) - the second part to the July 6 property cooling measures?

At a glance, the answer would be "no".

The revised guidelines cutting the maximum number of units allowed in a project was released through a circular, along with two others, by URA's development control group.

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The guidelines are probably something the statutory board's plannners had been working on for some time to moderate the reduction in home sizes, and to seek a better match between housing supply and demand profiles. Cooling measures, on the other hand, come under the purview of their colleagues who handle property market research and surveillance.

The revised guidelines were motivated by the planners' concerns about the liveability of Singapore's non-landed private housing estates, given that developers have been carving a higher number of units out of their projects in recent years. The new rules aim to encourage developers to build a more balanced mix of unit sizes to cater to the diverse needs of homebuyers including big families.

Moreover, projects with a high number of units tend to generate more vehicular traffic; getting into and out of the development may put a strain on roads in certain locales.

That said, the increase in the minimum average unit size for non-landed residential projects in the OCA to 85 sq m from the current 70 sq m - along with the move to extend the more stringent rule of a minimum average unit size of 100 sq m to more locations - will have very real implications for the business of residential developers.

The new rules - which will apply to new development applications submitted on or after Jan 17, 2019 - will change the game that residential developers here have been playing for nearly a decade. In order to drive up the average per square foot (psf) selling price of a project, developers have been downsizing units, thus maintaining absolute prices within an affordable sweet spot for home buyers.

In fact for much of the 15-month period prior to the July 2018 cooling measures, land-starved developers had been paying successively higher psf per plot ratio (psf ppr) prices to replenish their vital raw material.

It was not uncommon for property agents at showflats to persuade potential buyers to commit sooner - with the argument that prices of future launches in the area were set to increase further given rising land prices.

Even developers that had bought their sites before the upward price spiral took advantage of the opportunity to jack up selling prices.

Going forward, with the increase in the minimum average-unit size, developers would be able to build fewer units in a condo or private apartment project; to maximise the allowable gross floor area, this would translate to having larger units. All other things being equal, to keep the absolute prices of units affordable to buyers, developers would have to market them at lower psf rates - which in turn will bring down the project's average psf price.

Developers can be expected to become more cautious, especially after weighing the more punitive ABSD regime on residential land purchases under the July 6 package - and are likely to lower the psf ppr rate they offer for land.

URA's widely-watched private home price index can also be expected to ease off.

It could be purely coincidence, but some observers may find the timing of Wednesday's circulars interesting - coming just two days after URA released data showing developers had a fairly positive September in terms of private home sales volume.

Just a couple of months after the July 6 cooling measures, developers' sales volumes have started to stabilise, leading some of them to begin inching up prices. A number of property analysts have also grown more sanguine about prospects of price increases.

Several launches are scheduled for October. If their take-up is good, market confidence will come back and sales volumes rise. The URA price index could follow suit and the authorities may have to step in again.

The likelihood of the above scenario materialising is reduced, following URA's guideline revision. For one, the change is seen as a further dampener on collective sales as owners know that developers will no longer be able to support high en bloc asking prices by planning small units to drive up psf selling prices.

Potential home buyers, if they are not in urgent need of a new property from a developer, could turn to the leasing market in the short term in the hope that the downward trend in land prices will translate to more affordable psf end-unit pricing for them. The result is that developers' annual private home sales numbers could recede.

In this respect, Wednesday's announcement was not designed as a cooling measure but it can be expected to cool the market.

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