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Public home prices decline after rising in previous quarter

Though HDB resale prices declined marginally by 0.1 per cent in Q1 2016, it was still a marked improvement comparing year-on-year (YoY), when prices fell 1 per cent in Q1 2015. In the past 6 months, the resale price has remained stagnant, thereby confirming our previous prediction that the resale market is in a period of consolidation.

Mr Ismail Gafoor, PropNex Realty CEO said, “transactions in Q1 tend to be weaker due to the CNY holidays and February being a shorter month. However, transactions are expected to gradually increase due to the falling prices which will slowly attract more buyers to pick up resale units. As such, we expect HDB resale prices to be flattish in 2016, with marginal price movements in 2016.”

Resale transaction volume in Q1 2016 rose 7.6 per cent from the same time last year. This is the strongest – in terms of units transacted, in the past 4 years.

Resale prices expected to be flat in 2016

In 2016, the government will maintain measures to stabilise the public housing market such as the Mortgage Servicing Ratio (MSR) cap of 30 per cent and the maximum loan term of 25 years for HDB mortgage loans, three-year wait for new PRs before they can buy resale HDB flats, and allowing singles to buy two-room BTO flats in non-mature estates.

In addition, HDB will increase the BTO supply (HDB will launch 18,000 new BTO flats in 2016, more than the 15,000 which were launched last year) – which will sap demand from the resale market, thereby stabilizing prices.

Mr Ismail predicts that 2016 may spring a surprise as the current price points will entice more buyers to enter the market as it is attractive enough for young couples and/or upgraders – which could also be partly attributed to the non-existence of COV across the board,” says Mr Ismail.

2016 will probably see a price movement of about -1 to +2 per cent, with volume exceeding 20,000 units due to the lower asking prices.

Private home prices expected to register declines for rest of the year

URA’s Q1 2016 data shows that prices of private homes in Singapore fell 0.7 per cent quarter-on-quarter (QoQ), marginally higher than the 0.5 per cent decline in Q4 2015. With the property market continuing to operate in a tight financing and regulatory environment, Singapore’s property market remains within the down-cycle.

“It is obvious that private residential prices is also in a consolidation phase with prices still under some pressure,” said Mr Ismail, “prices are expected to show modest declines or remain flat with price decreases ranging from 0.5 per cent to 1 per cent for the next few quarters”.

Luxury properties in the CCR bucked the trend by rising 0.3 per cent as affluent home buyers have greater holding power and are able to wait for a suitable offer before selling. Furthermore, CCR properties attract primarily high net worth buyers, who are less likely to be affected by rising interest rates and/or existing measures.

It is similar for Singaporean buyers of prime properties in the CCR; they are usually more affluent and are also less affected by measures such as TDSR and ABSD – as compared to average income Singaporeans. The current low interest rates may have also induced demand.

In contrast, buyers of properties in the mass-market OCR and to a certain extent, the RCR, are generally more price sensitive, targeting properties with prices ranging from S$1,000-S$1,500psf in the mass market segment, and S$1,500-$2,000psf in the mid-tier segment. Such buyers are usually bargain hunting, or looking for ‘value-buys’ – as such, the ability to take up loans is critical for their purchase decision – but many are hampered by the TDSR as Mr Ismail believes that more potential buyers are finding greater difficulty to invest in a private home with a price quantum beyond $1.3 million given the lending curbs – and the situation is compounded by the ABSD.

Most purchasers are home-stayers and a significant group of them fall into the HDB-upgrader category. However, recent price indices from HDB and URA have fallen in the last couple of years, which again have impacted their upgrading ambitions.

“The smaller gain achieved from the sale of their HDB flat will limit the budget for their new private property and may cause some to put their plans on hold because the potential profit is insufficient to allow them to upgrade”.

With the presence of resistance to price hikes, prices of OCR projects have remained competitive as there is an added pressure for developers to price their projects reasonably. In view of such a tight loan environment, RCR prices remained unchanged whilst OCR prices registered the biggest fall with a 1.3 per cent fall. New project sales volume also fell about 11 per cent from the previous quarter across the regions.

In addition, secondary market sellers also face stiff competition from developers who are continuing to launch projects at attractive prices and incentives – resale volume fell about 8 per cent from the previous quarter. As such, buyers will have more options – they will only commit if they perceive the property to be a good value proposition. This may put a fair bit of pressure on sellers in the resale market, who may have to lower prices in order to make a sale.

Outlook for 2016

Notwithstanding the expected improvement in buying volume which is in line with more upcoming new launches in the pipeline, there seems to be little respite for the private residential property market at least in the short term. This is due to the continued enforcement of the property measures as well as interest rate increases and a large oncoming supply of homes. As such, Mr Ismail predicts that a buyer’s market is expected to persist until the end of the year.

“We expect prices to remain relatively stable with a bit of downward pressure in 2016. Developers will continue to adjust launch prices to match the current inertia in the market, but will not drop prices too much due to the high price in which they have secured the land. Similarly, resale prices will take cue from the primary market in a bid to attract buyers”, said Mr Ismail.

In view of these downside pressures, prices of private residential properties are projected to remain on a path of moderation. Furthermore, developers’ land bid strategies are expected to remain measured in the highly regulated residential property market, allowing them more flexibility in adjusting prices to encourage home purchases.

Mr Ismail concludes: “under such an environment, we expect price weakness to persist in 2016, with possible contraction of about 3 per cent – the lowest in the last 3 years.”

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