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Following the introduction of the Total Debt Servicing Ratio (TDSR) framework in June last year, the private housing market continued to be weak in Q1 2014 with price declines led by mid-tier and high-end homes, according to a Colliers International report.
During the period, developers launched 2,015 units compared to 2,631 homes in the quarter before, while sales in the primary market fell by 30.7 percent to 1,754 units.
"The lacklustre buying momentum came about despite efforts by developers to move sales, as well as the easing of some TDSR rules," said Colliers.
To entice buyers, developers dangled offers in the form of furniture vouchers, early-bird discounts, direct price discounts and partial absorption of stamp duty. But the allure of these promotions was outweighed by affordability concerns.
As for the revisions to the TDSR, it only provided some reprieve to investors and owner-occupiers looking to refinance their property loans. However, it did little to boost sales as properties bought after 29 June 2013 are still subject to the stringent rules.
The government eased the TDSR rules on 10 February this year. Under the revised framework, a borrower who plans to refinance may exceed the 60 percent limit on his overall monthly debt obligation, provided the property is owner-occupied and acquired before the TDSR was implemented. Such remortgaging is also exempt from the shorter loan tenure stipulated by the rules.
The exemption also covers borrowers with investment property but they must commit to a debt reduction plan during refinancing, and the remortgaging should be completed by 30 June 2019.
Colliers noted, "Above all, the thinning in market activity was most evident in the luxury segment where developers completely held back new launches on the back of sluggish demand."
As such, sales of high-end homes in the Core Central Region (CCR) for the first quarter were confined to previously launched projects. For instance, DUO Residences and Hallmark Residences found buyers for 23 units and 35 units respectively.
"Against this backdrop, launch volume in the CCR tumbled 96.2 percent quarter-on-quarter to 42 units, while sales volume dived 80.8 percent quarter-on-quarter to 147 units in Q1." The region also took the smallest slice of the pie, accounting for 2.1 percent of all launches in Singapore and 8.4 percent of sales during the period.
Mirroring the sluggish demand for such homes, average capital values of high-end and super-luxury apartments dipped 3.9 percent to $2,668 in Q1 versus the preceding quarter, the consultancy said.
"This makes the third consecutive quarter of descent following the introduction of the TDSR, indicating that overriding affordability concerns continued to take their toll on the already tepid luxury/super-luxury market."
In comparison, the All-Residential Property Price Index dropped by just 1.3 percent in the first quarter based on URA's advance estimates, following a quarter-on-quarter decline of 0.9 percent in Q4 2013.
Similarly, rents of high-end and super-luxury apartments continued to fall between January and March due to a slew of options from newly completed residential projects and upcoming ones as well.
"With a tenant's market in play, landlords were more open to rent negotiations," Colliers noted. Hence, the average monthly gross rents of high-end and super-luxury apartments saw a steeper quarterly decline of 1.9 percent in the first quarter over the 0.9 percent fall in Q4 2013.
Moving forward, the subdued private housing market in the first quarter will likely set the tone for the rest of the year, Colliers predicted.
"In view of the continued enforcement of the cooling measures, the tentative recovery of the global economy, the longstanding concerns of potential interest rate increases and a mounting supply of homes, there appears to be little respite for the private residential property market, at least in the short term."
As the appetite for new homes has been largely satisfied in the past two years and buying exuberance is waning, the sales volume in the primary market is expected to be lower than the 14,948 units taken up in 2013, possibly within the range of 11,000 to 13,000 units.
Nevertheless, new private home sales may improve in the next few months, as the market becomes more familiar with the various measures in place. It is also an opportune time for developers to ramp up their launches ahead of August, (lunar seventh month) which is considered an inauspicious time to buy houses.
However, the outlook for the luxury segment appears grim due to subdued interest from foreigners and higher holding costs that could force owners to sell their properties, adding to the pool of unsold units.
As a result, the stiffer competition could squeeze average prices of high-end properties by about 10 to 15 percent in 2014, while rents may fall by as much as 10 percent, added Colliers.
