Allure of condo living stimulates demand for mass market homes
Private new home sales were healthy in 2020, led by transactions in the mass market or outside central region (OCR).
BY AND large, Singaporeans' dream of owning and living in a private residential property remains very much intact despite the pandemic and economic downturn - as reflected by the healthy private new home sales in 2020.
Developers sold 9,982 new homes last year, led by sales in the mass market or outside central region (OCR). The total number of new homes sold in 2020 was 0.7 per cent higher than the 9,912 units transacted in 2019.
ALLURE OF CONDO LIVING
While many Singaporeans continue to enjoy living in public housing estates, the allure of condominium living has also nudged some households to trade up and move into a private home.
By our observations, some of the main pull factors of condo living include lifestyle preference, legacy planning, and wealth preservation.
Living in a condo development offers a different lifestyle experience. For instance, the resident will not have to travel far to make use of facilities such as the swimming pool or the gym. In addition, those who enjoy hosting get-togethers frequently can also easily book the function room or barbecue (BBQ) pit at condos.
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Legacy planning and wealth preservation are also on the minds of many private-home buyers, including Housing Development Board (HDB) upgraders. Some of them feel that private homes, especially the freehold or 999-year leasehold ones, would better preserve value and allow them to pass down the property to future generations.
Although lease decay would similarly affect 99-year leasehold private homes, many buyers take comfort in that they can address the issue - either by selling the development collectively on the en bloc market or by applying to the authorities to top up the lease to a fresh 99-year one, subject to the payment of land premium.
LOCAL BUYERS DOMINATE SALES
The OCR is often seen as an entry point into the private residential market by owner occupiers, including HDB upgraders. Supported by a broader demand base, the OCR also tends to account for the bulk of transactions, be it in the new sales or resale segments.
In 2020, there were 4,481 new homes sold in the OCR - representing 45 per cent of total new private home sales. Meanwhile, 5,794 mass market private homes were resold last year, making up 54 per cent of the 10,729 units transacted in the resale market.
Singaporeans accounted for a lion's share of non-landed new sales and resale transactions in the OCR in 2020 at 87.2 per cent and 77.5 per cent respectively - slightly higher than 2019's corresponding figures of 86.4 per cent and 75.7 per cent respectively.
Mass-market homes are generally more affordable than those in the prime core central region (CCR) and the rest of central region (RCR), making them more popular with a larger group of local end-users.
Meanwhile, the proportion of foreign buyers in both primary and secondary markets declined marginally in 2020. In 2020, foreign buyers accounted for 1.9 per cent of resale deals (down from 2.7 per cent in 2019) and 1.7 per cent of new private home sales (down from 2.2 per cent in 2019).
The pandemic-induced travel bans may have had some impact on foreign buying, but the OCR usually attracts far fewer foreign buyers compared with the CCR and RCR.
PRICE QUANTUM, UNIT SIZES
Further analysing the new home sales in OCR by price quantum, we observe that the pricing sweet spot for mass-market homes continues to be below S$1.5 million, where 76.3 per cent of new homes were sold in 2020.
Interestingly, a higher proportion of pricier homes - costing between S$1.5 million and under S$3 million - were sold in 2020 compared to 2019, potentially due to more larger units being sold last year.
A higher number of larger apartments changed hands last year - transactions of homes that are 800 square feet (sq ft) to under 1,200 sq ft rose by nearly 8 per cent to 1,421 units in 2020 from 1,316 units in 2019. Meanwhile, 504 units of homes over 1,200 sq ft were sold last year, representing a 76.2 per cent increase from 2019. In contrast, sales of shoebox units below 506 sq ft fell by 45.6 per cent year on year to 411 units in 2020.
There are a few reasons for the rise in sales of larger homes, including a shift in preference due to more widespread work-from-home practices, fewer new launches last year, and possibly the revised guidelines on maximum allowable dwelling units in condo developments outside the central area (which took effect on Jan 17, 2019) that may have crimped supply of smaller homes in new projects.
HEALTHY DEMAND AMID DWINDLING SUPPLY
Looking ahead, we believe the demand for mass-market homes from local end-users will remain healthy. In addition, the low interest rates and ample household savings will also support home purchase and financing.
In particular, the rising supply of newer resale flats entering the market will also help to stimulate demand and support prices. An estimated 25,530 HDB flats could complete their 5-year Minimum Occupation Period (MOP) in 2021 - higher than the 24,163 flats in 2020 - making them eligible to be resold.
Amid resilient demand, we observe that the supply of OCR new private homes has not kept pace with sales, indicating a demand and supply imbalance in this sub-market.
As at the end of Q4 2020, the OCR segment accounted for only 29.6 per cent (or 7,202 units) of the unsold stock of 24,296, but it made up about 45 per cent (or 4,481 units) of total new homes sold in 2020.
MASS MARKET HOME PRICES TO REMAIN STABLE
Given the healthy demand for and the tight supply of OCR homes - and perhaps also the recovery in the HDB resale market - we should expect prices of mass-market private homes to stay relatively stable, with a potential for a slight increase this year, barring any fresh cooling measures. In 2020, private home prices in the OCR rose by 3.2 per cent, as tracked by the Urban Redevelopment Authority's private property price index.
With most of the larger developments launched for sale over the past years, we are not expecting many new projects (excluding executive condos, or ECs) in the OCR in 2021.
Some of the notable ones will include the upcoming Pasir Ris Central development and two residential sites in Canberra Drive, which will collectively inject over 1,200 units into the market.
As the unsold stock in the market pares down, developers will be looking to replenish their land inventory. Given the prudent supply of sites under the Government Land Sales (GLS) programme, it is not surprising to see stiffer competition for residential plots in public land tenders, as we have seen recently in the case of the Tanah Merah Kechil Link and Yishun Avenue 9 (EC) sites.
Our market observations suggest that new home prices in the OCR will continue to be fairly stable as developers have little leeway to reduce prices, in view of the high land cost and the uptick in construction cost due to the pandemic.
That said, we believe mass-market private homes are still generally affordable to most buyers. Those with more immediate housing needs or tighter budget can also explore the resale market for buying opportunities.
- The writer is the chief executive officer of PropNex.
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