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Developers hard-pressed to price projects modestly
LATEST official statistics showed that developers' housing sales continued to languish last month, but the focus now is on the likely launches for the rest of the year and how much room developers have to price them attractively to get potential buyers into making a commitment.
Many developers paid high prices for 99-year private housing sites at state tenders in the past couple of years as they sought to replenish land following strong home sales at the time.
"Those with a high breakeven cost but who need to launch a project are likely to adopt a "Star Buy" strategy for inferior stacks of units in the development to draw out initial take-up to drive confidence in the launch," a seasoned developer told BT yesterday.
"Developers who worked in a potential price drop in their land bids would be in a better position today to trim end-unit prices and encourage buyers to consider making a commitment amid the current soft market," said Chia Siew Chuin, director at Colliers International.
"But even those who paid high land prices and left with less room for price adjustment may be willing to lower their price expectations. This could enable them to clear some units and generate cash flow - rather than maintaining the status quo and doing nothing as market conditions deteriorate further."
There will be heightened competition for buyers as more property launches are expected by developers who had bought residential land after December 2011. These developers are required to complete the projects and sell all units within five years, otherwise they would have to pay a hefty additional buyer's stamp duty on the land price with interest, Ms Chia noted.
Even amid the weak July developers sales stats released yesterday by the Urban Redevelopment Authority (URA), evidence is surfacing of developers successfully drawing out buying demand through attractive prices, highlights SLP International executive director Nicholas Mak.
"For instance, Wheelock released The Panorama in Ang Mo Kio in January this year, posting a median price of S$1,343 psf for sales in that month. But since it reduced prices in May to the S$1,200-plus psf level (median price), this project has been among the top sellers every month," he said.
"This goes to show that developers can revive sales at existing launches with meaningful price cuts. What remains to be seen, however, is whether this will result in a price war, which could be triggered, for instance, if one player were to sharply cut prices relative to other projects in the vicinity."
URA's July data also revealed that the remaining 37 units at The Vermont on Cairnhill, which was completed last year, were sold at S$2,113 psf median price in July. This is 8.6 per cent below the S$2,313 psf median price, based on caveats data, for all previous sales in the project by its developer, said OrangeTee research head Christine Li.
"Vermont's brisk sales show many high-end buyers are on the sidelines waiting to enter the market once prices become attractive," she noted. "In the private housing market as a whole, a 10-12 per cent price cut is typically enough to draw buyers in droves."
Last month, developers sold 484 private homes excluding executive condos (ECs), just two more than the 482 units they moved in June. In July last year, the figure was also 482 units.
Developers also offloaded 51 EC units last month, compared with 49 in June and 112 in July 2013. The weak home sales mirrored their strategy of holding back on major launches.
There were only four new launches last month - of which three were in the city fringe.
The top seller was City Gate on Beach Road, with 89 units transacted at a median price of S$1,809 psf. Near Kitchener Road, the developer of The Citron Residences found buyers for 23 units at S$1,585 psf median price. In the West Coast, 11 units were sold at Bijou at S$1,969 psf.
In the first seven months, developers sold 4,893 private homes and 354 EC units. For the whole of last year, the figures were 14,948 private homes and 3,588 ECs.
For the rest of the year, predicts Ms Li, EC sales will gather momentum and probably overshadow sale of mass-market private condos. There has not been a single new EC project launch in nearly a year, which means pent-up demand can be expected to manifest for five expected EC launches by year-end.
Some market observers expect genuine buyers to increasingly head for the resale market to pick up a completed property, including units in newly completed projects.
"These buyers can pick up something in the spot market, and within a short period either move in or rent it out," noted Savills Singapore research head Alan Cheong.
"Of course, the advantage of buying at a new launch from a developer is that buyers can make progressive payments for their property purchase, based on the phase of the project's completion. And in the case of leasehold property, they get an almost fresh lease term on their investment."