Uncertainty ahead

Private property prices in Singapore have hit a record high with mass market homes showing the greatest increase in the second quarter.

By PropertyGuru.com.sg

Private home prices in Singapore continue to show no signs of abating in the second quarter with the Urban Redevelopment Authority’s (URA) flash estimates showing the residential property price index reaching a record high of 184.1 points.

The URA’s index showed a quarter-on-quarter rise of 5.2 percent, translating to an 11.1 percent increase in the first six months of 2010.

The figure beats the 3 percent growth forecast by some analysts.

“The upward trend of the second quarter’s residential price index was expected even though the sales momentum slowed down a little compared to the first quarter of 2010,” says Joseph Tan, executive director for residential, CB Richard Ellis.

CBRE notes that the preliminary index for the second quarter is more than the market peak of 181.4 points back in the second quarter of 1996.

Mass market condominiums saw the biggest increase in prices.

iLiv@Grange, located on Grange Road

Strong demand, rising resale prices, GLS programme leading to price increase

According to URA’s data, the outside central region (OCR) took the lead rising by 5.7 percent followed by the core central region (CCR) and rest of central region at 5.1 percent and 4.5 percent increase respectively.

PropNex said there was strong demand for properties located in the OCR in the second quarter, leading to price increases.

The firm notes that the average number of private properties sold per month transacting below S$1,000 per sq ft in the second quarter was 863 units, translating to 53 percent of all units sold.

In comparison, only 32 percent of the properties transacted in the first quarter were sold below $1,000 per sq ft.

CBRE said the price increase could also be attributed to the price points set by new launches such as Tree House and The Minton as well as rising prices of resale transactions in locations where several sites from the government land sales (GLS) programme had been sold in the past six to nine months.

Echoing CBRE’s findings, DTZ notes that resale prices of leasehold homes in suburban areas increased by 4 percent quarter-on-quarter to $648 per sq ft, compared to the 2.1 percent increase in the first quarter.  

DTZ said the comparatively higher prices of new developments and aggressive bids for GLS sites in suburban areas have had a cumulative effect on raising the prices of homes in the secondary market.

Consumers finding affordability an issue

Indeed, according to an online poll conducted by PropertyGuru, 70 percent of its respondents felt that private property prices are getting too expensive.

Coupled with the news of the European debt crisis that triggered volatility in the global stock markets, both local and foreign investors are already reassessing their cash flow position and deferring their purchase, should a double dip recession occur.

“Since the European debt crisis unfolded, buyers, locals and foreigners alike, have remained at bay in Singapore’s residential market,” says Dr Chua Yang Liang, head of research for Jones Lang LaSalle Southeast Asia, noting that the number of caveats lodged by foreigners has fallen by 34 percent quarter-on-quarter to 495 in the second quarter.

However, analysts expect Chinese investors to still snap up luxury properties as properties here are relatively cheaper.

“The European debt crisis, have reinforced more Chinese players into Singapore’s luxury market, due to the favourable exchange rate and the fact that luxury properties here are relatively cheaper compared to the Chinese and Hong Kong real estate markets which are hovering at new highs,” says Donald Han, managing director for Cushman & Wakefield Singapore.

According to Cushman & Wakefield, Singapore’s luxury prices are some 18 percent below peak prices of 2008.

Moving ahead

Despite the rising prices, market watchers say they do not expect the government to implement additional anti-speculative measures.

In fact, a further overall price increase is expected to occur for the rest of the year with prices of mass market homes to stabilise.

“The ample supply of residential land by the government through its land sales programme will ensure a more stable supply in the longer term. As sales momentum becomes less frenzied, home prices will stabilise. It is likely that home prices will rise by a total of 12 percent to 15 percent for the whole of 2010,” says Tan.

Chua Chor Hoon, head of DTZ Southeast Asia Research, notes that developers are likely to tone down their land bids in view of the unprecedented high number of suburban sites to be sold in the second half of 2010’s GLS programme.

This, she said, will keep a check on prices of mass market homes.

“I am confident that the private property price index will continue to go up towards the end of 2010. And this will be easily achieved with our projected overall growth of about 3 to 4 percent per quarter for the rest of 2010,” says Mohamed Ismail, chief executive officer for PropNex.

Despite the European debt crisis and stock market volatility that have resulted in a slowing down in sales activity in May and June, analysts say there will still be some buying interest.

“The slower take-up rate for new developments is more sustainable. There is still buying interest and more new developments are being planned to be launched in the coming months. If they are well-taken up, that would motivate more developers to launch other projects and stimulate buyer interest,” says Margaret Thean, DTZ’s executive director for residential.

Meanwhile, the luxury sector is expected to remain quiet.

“Demand for prime residential properties is expected to soften as a result of heightened uncertainty arising from the European debt crisis for the rest of the year. While price growth is likely to remain moderated, the luxury prime market still has an upside potential for prices as they remain below their last peak,” says Dr Chua.