Price gap widens between new and resale condos

Overall condo sales are still resilient because the price-to-income ratio has come down to 4.6 in 2019 from 5.1 in 2016.

Published 2 hours ago

SINGAPORE - While new private home sales appear to be on the rebound, underpinned by higher prices of new launches and resilient demand amid an uncertain economic climate, the outlook may not be as good for resale condos.

According to a report by OrangeTee & Tie, resale transactions have slowed and some owners in the suburbs and city fringe areas may have dropped their asking prices in the face of competition from new launches.

The result is a widening gap between average prices of new and resale condos - a trend that tracks back to 2015 but has accelerated more significantly in the first three quarters this year, the report said.

This is happening because new projects are being launched at higher prices in recent months, causing new home prices to surge ahead of resale prices.

Some new launches are priced higher because developers paid higher land prices towards the end of the land-buying cycle that ended in early July 2018. Freehold projects or those located near an MRT station are also able to command a price premium.

Illustrating this trend, the average price of non-landed new private homes was 28.2 per cent higher than that of resales in the first three quarters of this year, compared with a 23.8 per cent gap last year, and a 15.1 per cent gap in 2017, the report said.

Ms Christine Sun, head of research and consultancy at OrangeTee & Tie, said: "Resale condo sellers don't have as much firepower to overcome the cooling measures, but developers can stimulate sales through talks, roadshows and other incentives (for new homes).

"Even if resale condo sellers want to tag their prices higher, their unit sizes are much bigger than new homes, so they can't increase the per square foot price too much or they will risk hurting buyer affordability."

Further, the number of new sales surpassed that of resales in the first three quarters of this year, a reversal of the situation in the past two years, she noted.

For instance, in the first three quarters of this year, 53.1 per cent of total sales, or 7,469, were new sales, while 46.9 per cent, or 6,607, were resales. But in 2018, 40.3 per cent, or 8,795, were new sales, while 59.7 per cent, or 13,009, were resales.

The shift is likely due to more new projects being launched this year, and more new homes being transacted, she said.

But Ms Christine Li, Cushman & Wakefield's head of research for Singapore and South-east Asia, noted that overall condo sales are still resilient because the price-to-income ratio has come down to 4.6 in 2019 from 5.1 in 2016, which means housing prices are more affordable as median household incomes continue to rise.

Ms Sun said that interestingly, the widest gap between the average prices of new and resale non-landed homes for the third quarter is in the city fringe or the rest of central region (RCR) (43.4 per cent), where a number of new projects were launched.

This is followed by 41 per cent for the suburbs or outside the central region (OCR), and 37.6 per cent for the prime districts or the core central region (CCR), she added.

Taking into account upcoming launches, this year will see 57 new launches in total, with 22 in CCR, 21 in RCR and 14 in OCR, according to Huttons Asia.

Prices of new homes jumped 9.8 per cent on a year-on-year basis across all three market segments in the third quarter of this year, with the largest increase seen in RCR (16.5 per cent), followed by OCR (8.1 per cent) and CCR (1.9 per cent), according to OrangeTee.

In the RCR, a number of new projects, including Amber Park and Sky Everton, have sold above an average price of $2,000 psf, which helped fuel the faster price growth, Ms Sun said.

In comparison, overall resale prices rose a mere 1.6 per cent year-on-year in the third quarter of 2019. Prices in CCR rose 1.1 per cent on a year-on-year basis, but prices in OCR dropped 1.5 per cent and RCR fell 2.1 per cent, due to competition intensifying from new launches in recent months, she added.

Still, the current average price gap is not as wide as in 2010 when new home prices were 41.2 per cent higher than resale non-landed homes, she pointed out.

JLL senior director of research and consultancy Ong Teck Hui noted that the gap widened more significantly from around 2010 because of the reduction of new unit sizes so that the overall price would remain affordable.

"With more smaller homes, including shoebox units, being incorporated in new projects (starting around 2010), the psf pricing could be raised as long as the absolute sale price stays affordable," he said.

On whether the gap will continue to widen, Mr Ong said: "Since measures have been put in place to limit the downsizing of units, this may have less of a bearing on the price gap between new sales and resales in future."

He added: "But given time, the stock of older homes will grow and more 99-year leasehold developments will see their leaseholds running down, which could result in slower capital appreciation for such properties."