Mass market condo segment key to stability
Ensuring that supply and demand match will support the broad base of the private residential market
PRIVATE non-landed residential properties in the Outside Central Region (OCR), also known as the mass market segment, made up around 46 per cent or 149,498 units in Singapore as at end-June 2023. The Rest of Central Region (RCR) and Core Central Region (CCR) accounted for 31.7 per cent and 22.3 per cent respectively, in the second quarter of 2023.
The proportion of non-landed private homes in the OCR has remained fairly stable over the past several years, from Q1 2017 to Q2 2023. Based on caveats from Jan 1, 2017 to Aug 22, 2023, 46.4 per cent of transactions are in mass market homes. OCR homes are favoured by HDB upgraders, due to buyers’ familiarity with the region as well as the affordable quantum.
Thus, any significant change in transaction volume and prices in the OCR could have a profound effect on the property market. Ensuring a stable supply of non-landed homes and prices in the OCR is paramount for market stability.
The government maintains stability in the property market through managing land supply, implementing cooling measures to curb buying and macroprudential measures that address financial system risk.
When private home prices in the OCR shot up 8.7 per cent in the first half of 2018, measures such as the increase in Additional Buyer’s Stamp Duty (ABSD) and tighter Loan-to-Value Ratio (LTV) were rolled out to tame prices.
Property prices in the OCR eased by 0.1 per cent the quarter immediately after – Q3 2018 – and grew more sustainably in subsequent quarters.
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When property prices went out of sync with economic fundamentals in 2021, 2022 and 2023, further loan tightening measures such as a lower Total Debt Servicing Ratio and higher medium-term interest rate floor were announced, in addition to higher ABSD. In December 2021, the government also announced that it would ramp up housing supply to meet demand.
Tracking supply, tracing demand
The en bloc cycle which started in 2017 and slowed down in 2018 greatly increased the supply of private residential dwelling units for development in the OCR by an estimated 10,000 in these two years.
The bigger developments sold in 2017 and 2018 were Florence Regency, Park West, Rio Casa, Serangoon Ville and Tampines Court. These were rebuilt into mega projects: the 1,410-unit The Florence Residences, 1,468-unit Parc Clematis, 1,472-unit Riverfront Residences, 1,052-unit Affinity at Serangoon and 2,203-unit Treasures at Tampines.
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Subsequently, the government reduced the supply of private residential dwelling units from sites offered under the Government Land Sales (GLS) programme by an estimated 50 per cent. Land for an average of around 1,200 units a year was released in 2018 and 2019, from more than 2,500 units in 2017.
Between 2017 and 2020, land sales from the en bloc market and under the GLS programme ensured a steady supply of new private homes launched for sale in the OCR, in the range of 4,000 to 5,000 units a year.
The onset of the Covid-19 pandemic injected unprecedented uncertainty in the economy, and the government further cut the supply of private residential dwelling units in the OCR under the GLS programme to 680 in 2020. This was probably the lowest level on record.
When the economy grew strongly by 7.6 per cent in 2021, demand for homes returned with a vengeance. The severe undersupply of new homes met with a strong recovery in demand, creating the conditions for a perfect storm.
Private property prices in the OCR surged by 8.8 per cent in 2021 and 9.3 per cent in 2022. This prompted new rounds of cooling measures in December 2021 and September 2022. To meet the increased demand, the government ramped up the supply of OCR land under the GLS programme in 2021 by 134 per cent to an estimated 1,590 private residential dwelling units. OCR land supply was bumped up by another 76 per cent in 2022, to 2,790 units.
In 2023, supply of OCR land in the GLS reached a 10-year high of 3,455 units. As there is a time lag of at least 12 months from the sale of a land parcel to the launch of the project for sale, the number of private residential units launched for sale in the OCR fell significantly and hit a low of just 1,669 in 2022. This was a result of low land sales during the pandemic.
The increase in land supply in the OCR in 2021 and H1 2022 brought more launches in 2023. Between Jan 1 and Sep 4, 2023, an estimated 1,716 new private homes have been launched for sale in the OCR.
Another 500-odd units in the OCR may be offered for sale in Q4 2023. Upcoming launches may include Hillhaven, Hillock Green and J’den.
Hillhaven is a 341-unit project in the Hillview private residential enclave and is just minutes’ walk to Hillview MRT station. Hillock Green is a 474-unit project in the upcoming Lentor private residential enclave and is opposite a shopping mall and Lentor MRT station. J’den, in the heart of Singapore’s second Central Business District, is a redevelopment of the former JCube and houses 368 units.
These may bring the total number of launched units in the OCR to an estimated 2,307 in 2023. While this is higher than 2022’s 1,669 units, it is still much lower than 2021’s 2,951 units and the annual average of 4,000 to 5,000 units from 2017 to 2020.
Outlook
The increase in supply however is coming against a backdrop of slower sales for recent launches.
Mass market homes tend to see more demand from HDB upgraders. But the number and proportion of buyers with an HDB address has declined in recent years. Buyers with an HDB address made up almost 50 per cent of new sales in 2017. Based on caveated transactions as at Aug 22, 2023, this has come down to 20.5 per cent. A similar trend was also observed for the RCR and CCR.
The key turning point was probably when the government raised ABSD to 17 per cent for a second property on Dec 16, 2021. Including the downpayment of 25 per cent and stamp duty of 4 per cent, HDB upgraders will have to cough up close to 50 per cent of the purchase price in cash and/or Central Provident Fund monies when they buy a new private home.
It was previously easier for many to sell their flat and rent or stay with parents or relatives in the interim. But the Covid-19 pandemic upended these plans. Rents spiked with a crunch in supply of available flats for rent, as work-from-home routines took hold and households required more space. One alternative is to buy a new executive condominium (EC) unit. But EC projects have strict qualifying conditions, and many HDB upgraders do not qualify.
This current market friction is not ideal and will constrain upward housing mobility in the long run. It may also affect the stability in the mass market segment. It is perhaps timely to review the ABSD on HDB upgraders as the nation refreshes its social compact.
Lee Sze Teck is senior director of data analytics and Mark Yip is chief executive at Huttons Asia
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