TOUGH YEAR AHEAD FOR SINGAPORE’S PROPERTY MARKET

singaporeDevelopers are bracing for a tough market ahead as many unsold units still remain while tenants are calling the shots amid a weakening rental market.

Singapore’s property market faces a lackluster year ahead as the various cooling measures, interest rates hike and the many unsold units continue to put pressure on rentals while developers are faced with hefty extension fines.

singapore2According to the Q4 data from the Urban Redevelopment Authority (URA), prices of condominiums in the Rest of Central Region (RCR) declined the most at 0.3% followed by those in the city centre (Core Central Region – CCR) at 0.2%. The suburban area (Outside Central Region – OCR) meanwhile remains unaffected.

The government has so far not hinted on whether it will remove the cooling measures which include the Additional Buyer’s Stamp Duty (ABSD), Seller’s Stamp Duty (SSD) and Total Debt Service Ratio (TDSR) and this have had a significant impact among foreign and local investors in the private property market.

As a result, developers may have to pay S$238 million on unsold units this year, up from S$90 million that they had incurred in 2015.

Since 2014, the Real Estate Developers Association (REDAS) had called on the Singapore government to lift the cooling measures which had negatively impacted on the number of unsold units by developers. For instance, according to the URA, as of the fourth quarter alone, 23,271 private housing units remained unsold out of the total supply of 55,638 units.

singapore2 copyIncluding executive condominiums (ECs), the total supply in the pipeline were 67,765 units. Of this, 6,744 EC units remain unsold.

“Based on the expected completion dates reported by developers, 26,467 units (including ECs) will be completed in 2016. Another 17,234 units (including ECs) will be completed in 2017. In comparison, 22,267 units (including ECs) were completed in 2015,” the URA said in a statement.

The government has so far not lifted its cooling measures (as widely anticipated) even after the 2015 elections and this is expected to have a significant impact on vacancy rates and the rental market in the months ahead.

Tenants call the shots

singapore3According to the URA the stock of completed private residential units (excluding ECs), increased by 5,299 units in Q4. Meanwhile, the vacancy rate increased to 8.1% in the same period, up from the 7.8% recorded in Q3.

Figures from the URA showed that rental decline was observed across all segments of the private residential property market. The rental market is currently facing three challenges – the tightening of foreign workers and expatriates in gaining their Employment Pass (EPs), restrictions on the granting of Permanent Residencies (PRs) and oversupply of private residential properties. With landlords outnumbering rent-seekers, tenants are calling the shots in the already weak rental market.

Condominiums located in the suburban areas (Outside Central Region) experienced the steepest decline at 1.8% followed by the Rest of Central Region and Core Central Region at 1.6% and 0.4% respectively.

For tenants, this is opportune time to dictate their terms and conditions as well as to negotiate for better rental price amid the weakening market.

Dwindling launches/take-up rates

singapore3 copyUnsurprisingly, launches and take-up rates remained weak in the fourth quarter with fewer units launched. According to the URA, 1,333 condominium units were launched in Q4 compared to the 2,435 units in the previous quarter.

Take-up rates also fell sharply with 1,603 units in Q4 compared to the 2,410 units sold in the previous quarter. In view of the huge supply coming onstream, sellers must be realistic in their asking price and may have to sell at a loss, especially for those who had purchased properties in prime areas. For buyers, this presents a good time to start their property hunt in the secondary market.

The HDB market

Amid the slowdown however, the public housing market (HDB) recorded an increase in the Resale Price Index (RPI) in the fourth quarter of 2015, increasing by 0.1% from 134.6 points in the third quarter. In comparison, the RPI registered a decline of 0.3% in the previous quarter.

In November 2015, the HDB launched 12,000 flats catering to a wide net of buyers. This had taken pressure off from the resale market as many buyers opted to buy direct from the HDB due to its significantly cheaper price in comparison.

Notwithstanding that, the resale market increased by 2.0% in Q4, up from 4,893 transactions recorded in Q3 to 4,992 transactions.

For the whole of 2015, the number of resale transactions was 19,306 units. This was an increase of 11.5% compared to 2014.

Woodlands recorded the lowest median quantum price for HDB 3-bedroom resale transactions at S$273,000 while the central area (Queenstown, Redhill and Tanjong Pagar) recorded a median price of S$425,000.

Moving forward, the HDB plans to launch four Build-To-Order (BTO) exercises in 2016 that will bring the total supply to about 18,000 flats. According to the board, the first BTO exercise will be held in February where about 4,150 flats will be offered in Bidadari, Bukit Batok and Sengkang.

This presents good news for buyers as they will be spoilt for choice with significant cost savings when they buy direct from the HDB, including the various grants that they are eligible for.

For sellers, the new supply coming onstream in 2016 plus the new BTO launches announced by the HDB will mean they will need to be more realistic in their asking price.

For buyers who cannot wait, this means they will be able to get their flats at a good price from the resale market. For tenants, this is their year as they will rule the HDB market in 2016.

KhalilKhalil Adis is a speaker and author behind “Property
Buying for Gen Y” which is slated for release in
the first quarter of 2016. You can reach him at
investorsclub@khaliladis.com
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