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Thread: The seven year itch - Business Times, Property, March 2017

  1. #6

    Default Win-win scenario in HDB resale market

    Win-win scenario in HDB resale market

    Friday, March 31, 2017


    Eugene Lim

    Seah Yao Hui

    HOUSING and Development Board (HDB) flats house over 80 per cent of Singapore’s population and, more often than not, are the first choice of housing for young families. A perennial question among this group of buyers has always been: Build-To-Order (BTO) flats versus resale flats, which is the better option?

    While BTO flats are cheaper, they come with a longer waiting time of around three years before buyers can move in. Resale flats are pricier, but the sale process takes a shorter time. Buyers’ choice would therefore depend heavily on their individual circumstances. However, with stabilising resale prices and increased Central Provident Fund (CPF) Housing Grants, resale flats have become an increasingly attractive option lately.

    In 2016, resale HDB flat prices were almost unchanged, dipping by only 0.1 per cent. Over the same period, the number of HDB resale transactions increased 8 per cent to 20,813 units. Among these transactions, there were 20 units that changed hands above the S$1 million mark. Evidently, resale flats are popular choices among buyers.

    Big price drops unlikely

    There are several reasons why the number of buyers is on the rise. A key one is that prices have fallen from their peak in 2013 and have been stable since mid-2015. It is extremely unlikely that HDB resale prices will register huge drops in the near future, as buying activity is already picking up at current price levels. Given the limited downside risk, buyers can be more confident in their purchase.

    Also, HDB resale transactional information is available publicly. Buyers no longer need to be afraid of getting a bad deal by “overpaying” a premium above the flat’s valuation. They can easily check against HDB’s database, which is updated on a daily basis, prior to any negotiations. Armed with such information, buyers now have a firm basis on which to centre discussions.

    Recently, Finance Minister Heng Swee Keat announced during Budget 2017 that the amount of grants available to eligible first-timer buyers would be increased with immediate effect. Previously, the Family Grant was S$30,000, but has since been increased to S$50,000 for first timers buying a four-room or smaller resale HDB flat and S$40,000 for those buying a five-room or larger resale flat. Together with the Additional CPF Housing Grant and Proximity Housing Grant, the total amount a first timer is eligible for is now a maximum of S$110,000. Effectively, this makes resale flats more affordable for buyers. This is expected to swing more buyers to the resale market, especially those still deciding between a BTO flat and resale flat, as they capitalise on the higher grant amounts.

    Hence, the current market is a favourable one for buyers. Now would be a good time for buyers to consider committing to a purchase, especially if they have been sitting on it for some time.

    Should I sell my flat now?

    On the other hand, some sellers might have been reluctant to put their unit on the market as prices are lower than the peak some three-and-a-half years ago. However, current market conditions are still favourable for sellers.

    For one, HDB resale prices were on the rise from 2005 to 2013, increasing by a total of 104 per cent over 31 quarters. In comparison, the recent slide in prices was only 9.9 per cent over 14 quarters. Most sellers would still be making a healthy profit even if they were to sell today, especially if their purchase was a BTO flat.

    For sellers who are looking to upgrade to a private residence, now is an opportune time to make the switch. Private residential prices have been on a decline; and there is abundant supply in the market. Upgraders would be spoilt for choice as developers continue to keep prices attractive in order to woo more buyers.

    Of course, there are concerns among sellers that prices would increase after they have sold their unit. However, this is not very likely to happen. As National Development Minister Lawrence Wong said, the government expects HDB resale prices to remain stable due to the healthy supply of resale flats.

    It is worth noting that the Mortgage Servicing Ratio (MSR) compels buyers to keep their monthly mortgage repayments to 30 per cent of their household income, thereby capping the maximum loan amount available to them. Any price increase will therefore be tied to income growth. Given that Singapore’s economic growth is forecasted to be in the region of one to three per cent in 2017, any price increase would be a gradual process, instead of a sudden spike.

    Also, with the increased grants, there will be more buyers looking to purchase resale flats. Selling may likely be an easier and faster process now. However, sellers should be cautioned against rashly increasing their asking prices for their flats in view of the higher grant amounts, especially if the change is not backed by transaction data. HDB flats are very similar products and buyers can easily switch to sellers who did not raise prices.

    No perfect time

    Moving forward, we are not expecting huge changes to the HDB resale market. Transactions will probably receive a boost from the higher grant amounts. We are expecting a 10 per cent increase in resale volume this year over 2016, in the region of 22,000 to 23,000 units. Price wise, we might be seeing a modest uptick this year, in the range of 0.1 per cent to 0.5 per cent for the full year.

    Unlike in the private residential market, where emphasis is placed on timing for investment purposes, the HDB resale market is much less speculative. Thus, our advice to any prospective buyer or seller is to focus on need instead. There is simply no perfect or best timing to enter or exit the HDB resale market.

    Eugene Lim is key executive officer and Seah Yao Hui, assistant manager, research at ERA Realty Network

  2. #7

    Default ECs still a value buy in current market

    ECs still a value buy in current market

    With a significant price gap between new ECs and suburban condos, ECs enjoy a higher safety margin and bigger potential for capital appreciation.

    Friday, March 31, 2017

    by Wong Xian Yang

    ON March 10, 2017, many were taken by surprise by the government’s move to ease property cooling measures by adjusting downwards the holding period and rates for the seller’s stamp duty (SSD). Though this change does not directly impact the executive condominium (EC) market, there should be a positive spillover effect from the boost in sentiment in the private residential market.

    But even before the surprise announcement, the demand for ECs had already risen in the past year with buyers snapping up 3,999 EC units in 2016, an increase of 56.8 per cent over 2015’s sales of 2,550 units. The jump in sales may be partially attributed to improving sentiment in the private residential market, as buyers returned to the market with increasing belief that private home prices are stabilising. Notably, the top two selling EC projects in 2016 were Wandervale and Treasure Crest, which sold a total of 1,001 units.

    Despite the jump in EC volumes on the back of improving sentiment, EC prices have not fallen much. With that in mind, one may ask if ECs still present a compelling value proposition for buyers.

    A hybrid between public and private housing, ECs were immensely popular among buyers from 2012 to 2013. Similar to private condominiums, ECs are built and designed by private developers and come with condo facilities such as swimming pools and BBQ pits. First-time EC buyers also enjoy government grants of up to S$30,000.

    However, buying a new EC unit comes with restrictions. There is a prescribed monthly household income ceiling of S$14,000 and buyers of new ECs have to form a family nucleus, which must comprise two Singapore citizens, or a Singapore citizen and a Singapore permanent resident (PR). New EC buyers also have to adhere to a minimum occupation period (MOP) of five years before they can sell in the open market to Singapore citizens or PRs only. Only after 10 years will the EC be considered fully privatised and can be sold to foreigners.

    New EC units are sold at a discount to comparable new private condos. Currently, the discounts can range from 20 per cent to 25 per cent. Notably, when the restrictions on ECs are lifted after the five-year MOP and at privatisation, the price gap of resale ECs and resale condos narrows to around 9 per cent and 5 per cent respectively.

    How fast did past EC launches sell?

    Historically, new EC launches sold relatively well with the exception of a few projects which were caught by cyclical market downturns. The early batch of ECs that were launched in 1996 to 1999 were mostly very well received. The median duration for each EC project to sell 80 per cent of its stock was only a short span of 3.7 months (Chart 1). Market sentiments were at a high then after a run-up in property prices between 1992 and 1995, and ECs presented an affordable opportunity for many to jump onto the private property bandwagon. However, a few EC projects that were launched between 1998 and 1999 were caught in the aftermath of the 1997 Asian financial crisis and their pace of sales moderated sharply.

    The subsequent batches of EC launches experienced a slower pace of sales, as seen by the increase in median duration (Chart 2). ECs were back in vogue from 2010 to 2013, and 24 projects were launched during this period. The suspension of the Design, Build and Sell Scheme (DBSS) in 2011 and rising private home prices drove demand towards the EC market and the pace of sales fell to 9.3 months. With increased demand, EC prices started to rise and the government intervened to cool the market. A 30 per cent mortgage servicing ratio (MSR) and a resale levy were implemented in late 2013.

    Are ECs sure-win investments?

    To date, a total of 63 EC projects have been launched. Of these, 23 have already completed their five-year MOP and are available on the resale market. We analysed their launch prices and subsequent resale prices five and 10 years after their respective completions, and matched their caveats to derive the average profits and losses of transactions (Chart 3). The analysis focused solely on S$ per square foot prices and does not take into account grants, stamp duties and other miscellaneous fees.

    The results show that not all ECs were profitable after their five-year MOP. Despite the inherent price gap between ECs and private condos, buyers who picked up ECs near or at the peak of the market made losses after the five-year MOP. This applies to the first batch of ECs that were launched from 1996 to 1999. After a series of tumultuous events such as the 1997 Asian financial crisis, the 2001 tech bubble burst and the 2003 Sars outbreak, the Urban Redevelopment Authority’s overall private home price index during 2004-2005 was still about 35-38 per cent below the Q2 1996 peak.

    The next batch of ECs projects, launched between 2001 and 2005 during a period of stagnating private home prices, fared much better. Their owners benefited from the subsequent upturn in property prices in 2006 and reaped significant profits when they sold their units five years after their MOP.

    In the longer run – 10 years after completion – all of the ECs were profitable. One should bear in mind that EC resale prices closely correlate with overall private home prices and the EC-private condo price gap does not guarantee a sure-win investment for ECs.

    Since their inception in 1996, ECs have enjoyed success on the whole. Most EC projects tend to sell out within two years. However, in early 2016, there were mounting concerns about the state of the EC market, with launched but unsold inventories of EC units soaring to a historical peak of 4,007 units in April 2016. But EC sales started to recover soon after and the unsold inventory fell to 2,088 units in February this year.

    Unlike its private condo counterpart, the supply of ECs is more limited, and the only source of new EC sites is the Government Land Sales Programme (GLS). There have been no new EC sites on the confirmed list in the past two GLS exercises. Bearing in mind the 15-month waiting period from acquiring the site and market launch of the project that developers have to adhere to, ECs will be in short supply in 2017 and 2018. Only three new EC projects are expected to be launched this year, compared to five last year.

    The main driver of EC demand is the significant price gap between this housing form and suburban private condos. With a lower purchase price and similar characteristics between ECs and private condos, ECs enjoy a higher margin of safety and a bigger potential for capital appreciation. The availability of government subsidies helps to underpin this advantage. Furthermore, the sandwiched class has few alternatives with the suspension of the DBSS scheme.

    In conclusion, ECs still offer an attractive value proposition for eligible owner-occupiers, given the significant price gap, government grants, and the lack of alternatives for the sandwiched class.

    The writer is head of research & consultancy, OrangeTee

  3. #8

    Default Collective sales poised for recovery?

    Collective sales poised for recovery?

    The tight supply of private housing sites at state tenders and strong demand for land by developers bode well for en bloc sales in 2017.

    Friday, March 31, 2017




    In 2016, an uptick in the collective sales market, with three sites finding buyers including Shunfu Ville (above), led to increased optimism and interest among owners of potential collective sale sites.

    THE residential collective sales market moves in tandem with the broader residential market cycle, registering stronger activity during the upturns while moderating during downturns. Responding to a rising market between 2005 and 2007, the collective sales market boomed, establishing a record sales volume of S$10.9 billion in 2007. In 2008/09, the global financial crisis resulted in collective sales plummeting to insignificant levels before staging a mild recovery between 2010 and 2013.

    However, the imposition of various cooling measures, culminating in the total debt servicing ratio (TDSR), led to residential collective sales flattening again in 2014 and 2015. Developers, faced with oversupply and an increasing unsold stock in their inventories, became more cautious and shied away from collective sales. The chart above shows the trend of the annual residential collective sales value between 2006 and 2016.

    Reduction in oversupply and improving home sales

    As the residential market eased under the weight of the cooling measures, falling home prices and sales volume and rising oversupply prompted policymakers to cut back supply in the Government Land Sales (GLS) programme. The planned quantum of private homes on the confirmed list in the GLS programme was trimmed by more than 75 per cent in the past five years, from 13,255 units in 2011 to 3,095 units in 2016. The stock of unsold private residential units also nearly halved during the same period, from 40,430 units as at end-2011 to 21,102 units as at end-2016, bringing down the oversupply to a more manageable level.

    After the introduction of the TDSR of 60 per cent, transactions plunged, leading to developer sales of private homes registering a low of 7,316 units in 2014. As the market gradually came to terms with the TDSR, new private home sales stabilised in 2015, with 7,440 units sold. In 2016, new private home sales grew 7.2 per cent year-on-year to 7,972 units against a backdrop of improved sentiment and a perception that the market is close to the bottom.

    Demand for residential land strengthens

    Under these circumstances, developers have been bidding competitively for the limited number of GLS residential sites on the market, driven by the need to replenish land banks and for business continuity.

    An apt example of heightened competition for private residential sites is the tender in August 2014 for the two adjacent land parcels along Fernvale Road that are now being developed into High Park Residences vis-à-vis that of the neighbouring site in September 2016.

    Parcels A and B of High Park Residences drew four and three bidders, respectively, while the neighbouring site was contested by 14 parties. An almost similar trend was observed for many sitestendered since late 2014. In 2016, we saw an uptick in the collective sales market, with three sites finding buyers – Shunfu Ville (S$638 million), Raintree Gardens (S$334.2 million) and Harbour View Gardens (S$33.25 million), which led to increased optimism and interest among owners of potential collective sale sites.

    Market conditions augur well for collective sales

    The possibility of the residential property market bottoming and an anticipation of a sustained growth in new private home sales will lead to higher confidence among developers in their quest for sites. Judging by the strong participation in GLS residential land tenders, especially since the second half of 2016 when the number of bidders averaged 12 per site, demand for sites in 2017 is likely to remain robust. With only five sites on the confirmed list in the first half of 2017, many interested parties will still not be able to secure sites and will be compelled to continue bidding for other sites competitively. Although we may expect increased supply in the confirmed list of the GLS programme for the second half of 2017, it is likely to be modest, which will not ease demand pressure for residential land. While the reserve list provides additional sites to augment the confirmed list, only a few have been triggered in the recent past and these are typically the more attractive ones. Under these circumstances, private or collective sale sites would be viable alternatives to GLS offerings.

    How different is it this time around?

    While sales of new private homes rose in the past two years, the increase has been gradual, due mainly to the dampening effects of the cooling measures. Prices, in general, have not yet turned around, although their declines have been moderating. While these signs are encouraging for the market, the medium-term outlook remains uncertain. With the cooling measures still in force, a V-shaped recovery can almost certainly be ruled out, leaving the more likely possibility of prices trending mildly upwards after they have bottomed out.

    The parties involved in collective sales need to understand this and also the fact that home prices are currently 10-20 per cent lower than the peak in 2013 (depending on the sub-market), so land prices would have to be at realistic levels.

    While there are signs of improvement in the residential market generally, there are differences among the sub-markets. The Outside Central Region (OCR) or suburban sub-market has a more comfortable level of unsold stock amounting to 8,358 units as at Q416 relative to the annual developer sales of 4,807 units in 2016 or a ratio of 1.7. A ratio of 2.8 is seen in the Rest of Central Region (RCR) or the city fringe sub-market, which has 6,950 unsold units against new sales take-up of 2,483 units last year. The Core Central Region (CCR), which includes the prime districts and Sentosa, has been the hardest hit by the cooling measures. It is saddled with 5,794 unsold units and with only 682 new homes sold in 2016, has the highest ratio of 8.5, which reflects the extent of oversupply in the number of units for sale.

    Based on this data, developers would be more forthcoming towards the OCR and RCR sub-markets, where selling prices are more affordable and unsold stock is of less concern than in the CCR. Collective sales in the CCR are likely to be more challenging and would require a rational perspective on pricing among interested parties in order to be successful.

    The recent easing of the seller’s stamp duty (SSD) and the total debt servicing ratio (TDSR) is a positive signal that could lead more buyers back into the market. However, the punitive stamp duties that are applicable to the transaction of physical assets are now applicable to transactions involving transfer of shares in entities that primarily hold residential properties. This makes it more difficult for developers to dispose of unsold inventory in order to avoid Qualifying Certificate extension charges, and additional buyer’s stamp duty (ABSD) on the purchase price of the site if they do not fulfil the five-year conditions for upfront remission.

    In conclusion, there are prospects for the collective sales market to follow on the momentum of 2016, but it is unlikely to be exuberant. Many developers will be interested in collective sales opportunities but at measured price levels. Owners, on the other hand, would be equally enthusiastic but over-optimism in pricing could prove a challenge for the gap to be bridged.

    Tan Hong Boon is regional director, capital markets and Ong Teck Hui is national director, research & consultancy, at JLL

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