Despite slowing property price declines, developers are in no hurry to bring new projects to market and quarterly Singapore private home sales volumes have fallen 43%, says JLL
Even though there are signs that the decline in Singapore’s real estate market is softening, it is still likely to be in for a ‘painful journey’, says a top agency research chief.
Quarterly price declines for private residential properties from Quarter 4, 2013 to Quarter 2014, reached up to 1.3%, according to the Urban Redevelopment Authority’s (URA) price index.
But in Quarter 3 2014, the URA index for private homes fell by 0.7%, the best result since Quarter 4, 2013.
However, Ong Teck Hui, National Director of Research for JLL, in Singapore, warns, “It was by no means a sign of the residential market bottoming out, as fundamentals are still deteriorating” and developer sales are being hit hard.
In Quarter 3, 2014, developers only managed to sell 1,531 private homes, 43% less than the previous quarter’s total of 2,665 and only a third (34%) of developer sales in 2Q13, before the Total Debt Servicing Ratio (TDSR) was imposed.
The secondary market was equally lacklustre with only 1,424 units sold from July-September, about 41% down from pre-TDSR volumes.
“Since the Monetary Authority of Singapore imposed the Total Debt Servicing Ratio in June 2013, borrowers can only use up to 60% of their monthly income for servicing both property and non-property loans. The effect of the TDSR was a significant drop in residential sale transactions after it was introduced and an eventual easing in home prices,” Ong Teck Hui explains.
Developers reaped the benefits of a buoyant market from 2009-2013 and are generally in a good financial position and property owners saw capital values rise 62%. Economic conditions and the business environment have also been stable, so there is no strong pressure for developers and homeowners to sell.
“An impasse between buyers and sellers will slow transaction activity and impede sales progress of developers and home owners who are trying to sell. If this continues, it will be a trying time for them and a painful journey ahead for the market,” he says.
With thin sales volumes, some developers have been discounting selling prices, but most are trying to resist significant price cuts, while others are delaying project launches.
“It is not difficult to understand developers holding back new sales launches – one might as well not launch a new project if the launch is going to be met with a poor buyer response that the media will highlight, generating adverse publicity.
“Launching new projects will also increase the number of unsold units in launched projects, exacerbating the oversupply situation in the market. While the launch of new projects is being dragged out, some developers are also hoping that, at some point, the authorities might ease the cooling measures, leading to some market recovery.
“However, a slow softening in prices is more likely to protract any potential easing of the measures, as it would be more difficult for policymakers to justify easing them when prices in general are only slightly off the top. The risk of prices being artificially maintained is that they would have to correct eventually to be in line with fundamentals, so the correction later on is likely to be of greater magnitude,” Ong Teck Hui concludes.
Prime rents continue to fall in Quarter 3, 2014 with typical prime rents dipping -1.57% quarter-on-quarter and luxury prime rents falling -2.52%, according to JLL Singapore’s Property Market Monitor for October 2014.
Strong supply expected in the next two years weighs on rental sentiments and expectations across many developments have moderated.
The air of caution in the prime market is likely to linger as long as the tight lending environment remains in place – putting downward pressure on sales and capital values.
By Adrian Bishop, Editor, OPP Connect