The shape of things to come

WHAT were the takeaways from Monday’s data download on new home sales in April?

1. Volume was up 80 per cent from March to 887 units - largely from two launches in particular. Sales were up year-on-year, and the highest in seven months. 2. Volume is still some way from the last peak of 1,355 new units sold in May 2022, and nowhere near the 2,793 new units sold in March 2013. 3. Pricing at the top of the market, in new prime projects, is starting to soften. 4. Take-up at new launches is now price-sensitive.  5. Developers may come under some pressure to lower prices to close the gap in sales from investment buyers dropping out.

Data also shows that foreign buying of private homes was at a five-year high in Q1, just before the government rolled out its latest intervention at the end of April. With the much-higher additional buyer’s stamp duty (ABSD) for foreigners now in place, agents report that while they are still taking viewings, buyers are “less forthcoming”.  

Strong sales at a project launch give the market much momentum. Potential buyers get FOMO and move quickly before units sell out. But when a new launch sees slow sales, buyers stay on the fence. At the launch of The Continuum earlier this month, 216 units were sold - about 26 per cent of the 815-unit project. While selling a quarter of units at launch is hardly a disaster, as Leslie Yee writes in The Level Ground, a weak sales response spells trouble for developers. Strong early sales mean less reliance on debt funding. Further, poor take-up shakes sentiment and stirs negativity, which then also hampers sales at future launches.

Eyes are on the next launch: Far East Organization’s The Reserve Residences, a 99-year-leasehold project where 732 units are available at prices starting from S$2,300 psf.

Slow new home sales also hurt earnings and income in the agency trade. Apac Realty, which operates the ERA Realty Network, saw revenue and net profit fall in Q1, which it attributed to lower volume of new home sales as launches were limited in the last six months. Both new homes brokerage revenue as well as resale and rental brokerage revenue were down for the quarter. 

Yet, new home prices are still advancing. Edmund Tie’s Lam Chern Woon notes that in April 2023, the median price of resale transactions was broadly unchanged at S$1,593 psf. But in the new launch market, the median price rose 9.6 per cent from S$2,273 psf in March to S$2,492 psf in April.

Most recently at The Continuum, pricing of units sold at launch in May averaged S$2,732 psf.  

Sing Tien Foo, Provost’s Chair Professor at the NUS Business School’s Department of Real Estate, lays out some sobering statistics for buyers at today’s prices.

At Blossoms By The Park in the city fringe region, 70 per cent of the 275 units were sold at the end-April launch at an average price of S$2,423 psf. A foreigner buying a three-bedroom unit of 1,076 square feet in size would pay ABSD of S$1.37 million on top of the list price of S$2.28 million. They would then be paying S$3.65 million for the unit, which increases the psf price for that unit from S$2,120 psf to S$3,390 psf - a level pitched higher than comparable units in a prime area before the new ABSD regime. 

“Even for local first-time buyers who do not need to pay ABSD; this three-bedroom unit will be a stretch unless they are in the top 10th decile of households with a monthly income above S$18,840. This is based on the assumption of a 4 per cent interest rate floor, a loan term of 20 years, and subject to the total debt servicing ratio (TDSR) of 55 per cent,” says Prof Sing.   

For the local or permanent resident (PR) buyer picking up their second property who coughs up the ABSD anyway, they would need prices to appreciate by 20-30 per cent to defray the increase in ABSD costs and break even, he adds.  

Prof Sing believes that if the government had not moved when it did, the costs of inaction would be high. If prices continue rising at pace with higher mortgage rates looming, Singapore private housing would become inaccessible even to median-income households. If macro conditions worsen, a collapse in property prices would have widespread consequences. 

Come end-June, developers will have more work on their hands - they face a surge in compliance requirements with new rules to combat money laundering and terrorism financing. All new residential and commercial sales will be subject to the rules.  

On the ground, developers are grappling with how they will conduct checks that are watertight - Googling names and checking publicly available data may not be particularly effective in rooting out hidden dodgy links. Developers will also need to make their own judgement calls to gauge if a potential buyer is high-risk enough to warrant further detailed checks.

Deals

CapitaLand Ascendas Reit plans to acquire The Shugart from Seagate Singapore for S$218.2 million. The acquisition of the high-specification research and development (R&D) facility and business park property will expand its footprint in the one-north district by 13 per cent to S$1.9 billion for assets under management and by 21 per cent to 2.5 million sq ft in net lettable area.

Entities affiliated with the Thye Hua Kwan (THK) Group of Charities are in the early stage of buying two office floors at the freehold Solitaire on Cecil for about S$103.2 million. The 20-storey development coming up on the former PIL Building site has already sold six of its 15 office floors, with the penthouse office floor transacting at a record S$4,325 psf. 

Hong Kong-based private equity firm Gaw Capital Partners, already active in Japan, is eyeing more deals in the western island of Kyushu. It’s banking on opportunities that Taiwan Semiconductor Manufacturing (TSMC) factories currently being built there could bring to the region. 

According to a report by CBRE, commercial real estate markets in the Asia-Pacific (Apac) region face a US$5.8 billion funding gap between now and 2025. Therein lie pockets of opportunities for local property players eyeing assets in distress. 

Reits

The burden of rising financing costs, coupled with downward pressure on valuations and income, is taking a toll on several Reits.

Manulife US Reit’s occupancy falls to 86.1% as top tenant gives up a quarter of leased space

EC World Reit posts 18.5% drop in Q1 DPU to S$0.01127

Cromwell European Reit posts indicative Q1 DPU of 3.9 euro cents, down 5.8 per cent

Prime US Reit Q1 net property income down 7.2% to US$23.6 million