August update

MONTHLY PROPERTY MARKET DIRECTION UPDATE

Introduction

Is there a real estate bubble; or is there not? This is also what we are asking ourselves now. This report will show readers that despite being in one of Singapore’s deepest recession, new home sales broke the national record of having the highest number of new units (i.e. 1,825 units in all) sold at all time. However, when prices are scrutinised another picture emerges. It appears that housing developers are in the hurry to offload their inventories by keeping prices at very affordable level. At this moment, the situation still intrigues most property analysts as to who will be the real winner at the end of the day.


(A) OVERVIEW OF THE LARGER ECONOMY

[A.1] MINISTER MAH CAUTIONED AGAINST EXCESSIVE SPECULATION

Where the taxman added more confusion and unnecessary trepidation by the untimely announcement of the Gain Tax, Minister Mah Bow Tan scored with his usually crisp comment that the Government will take 'whatever action necessary' to prevent excessive speculation in the property market.

However, as of now, Mr Mah does not believe “there is excessive speculation at the moment, but there is some element of speculation involved”. He pointed out that “some of the practices and habits that you saw in the last property boom are beginning to come back, so I think we'll have to be careful.”

He also warned about a property bubble forming.

Recently, the mass market segment has gone crazy with frequent sightings of long queues curling in front of new show rooms days before they were opened. For example, Optima, next to the Tanah Merah MRT and the 329-unit Centro Residences opposite Ang Mo Kio MRT station.

[A.2] SLIGHT IMPROVEMENT IN FOREIGN PURCHASERS’ SHARE AND SUB-SALE VOLUME

According to URA data, the number of sub-sale deals for private homes reached 1,041 in the second quarter (Q2) of 2009, and the median sub-sale price has likewise gone up to $959 psf or 18.1% over Q1 2009.

HDB upgraders' share of total caveats, which had been increasing for six consecutive quarters since Q4 2007, slipped in Q2 this year as purchases by those with private addresses rose at a faster pace. (see statistics of new home sales at Outside Central Region (OCR)B.1.3.

Q2 2009 also saw higher number of mid and mid-upper projects being launched and these are products that are typically beyond the reach of HDB dwellers. Coupled with the fact that there were fewer launches of mass-market projects in Q2 2009, the share of HDB dwellers of total purchases was therefore smaller this time round.

The number of caveats for private homes lodged by foreigners, including PRs, showed the same upward trend, reaching 1,418 in Q2 compared with 496 with Q1 2009. This is not surprising as the market has reached fever pitch.

[A.3] RETRENCHMENT CONTINUES IN SINGAPORE WHILE FEWER NEW JOBS WERE CREATED IN Q2 2009

According to a preliminary report from the Ministry of Manpower (MOM) published on 31 July 2009, a total of 5,500 workers lost their jobs in the second quarter (Q2) of 2009; and this is less than half the 12,760 redundancies in Q1 2009.

2,600 workers lost their jobs in the manufacturing sector in Q2 2009, compared with 9,250 in Q1 2009. 2,400 workers were laid off in the service sector in Q2 2009, compared with 3,170 in Q1 2009. The rest of the 500 workers who lost their jobs were from the construction industry.

Total employment was also reduced by 12,400 in Q2 2009, double the losses in Q1 2009.

[A.4] US JOBLESS RATE TO STAY HIGH – A REAL BAD NEWS

The US Federal Reserve expects the unemployment situation to worsen this year, probably topping 10%. The central bank previously predicted that job losses will be around 9.6%. The nation's unemployment rate climbed to a 26-year high in June 2009, hitting 9.5%.

The Fed also gives a range of all the forecasts including some officials’ expectation that the jobless rate would hit 10.5% this year, and 10.6% in 2010.

The post-World War II high was 10.8% at the end of 1982, when the country had suffered through a severe recession. The jobless rate averaged 5.8% last year.


(B) OVERALL PERFORMANCE OF PRIVATE RESIDENTIAL PROPERTY SEGMENT



[B.1] SOMETHING BIZARRE IS HAPPENING IN THE NEW HOME MARKET

Officially, Singapore is still in one of the worst recessions it ever had. But the country is in one of the best property bull runs as 1,825 new home units were sold in June 2009, knocking down the highest sales record of 1,723 new home units sold at the height of the 2007 bull-run before the market came to an abrupt halt.

And since February 2009, property analysts have been saying the rally would not last. Nothing can be more bizarre than this. The rally just defies logic.

By now, property developers have already sold more than 7,300 units in all. In theory if the situation remains more or less stable, the full year take-up may well exceed the record sale of 14,811 new home units.

But before any educated guesses are made, two things need to be ascertained: (1) the sale prices achieved so far this year; and (2) the market trend of home rents.

So far, it has been ascertained that prices of new home units did not improve much (please refer to last two reports in June and the findings in the July ‘Property Market Direction’ magazine). In subsequent chapter, we will look at the fall home rents and determine how long more before the ignorant buyers will wise up. First of all, let’s look at the details of the new home transactions.

[B.1.1] Good sales number at Core Central Region (CCR) but developers appear to be in a hurry

In June 2009, high-end homes in CCR sold 526 units from 34 projects, compared with 617 units from 32 projects in May 2009. This shows that developers are launching more projects but had sold fewer units in CCR. Likewise, median prices across the board appeared to be rather subdued.

Below are comparisons of sale prices between the whole of 2008 and June 2009 in some selected new condo/apartment projects in CCR. The June transacted prices are also compared with April prices to make sense of the actual market situation.


• 22 units at Zenith at Zion Road were sold in January 2008 at a median price of $1,682 psf, compared with two recent transactions in June 2009 at a median price of $1,300 psf (in April 2009 the median price was $1,199 psf).

• 13 units at Mulberry Tree at Moulmein Road were sold in September 2008 at a median price of $1,337 psf, compared with two May 2009 transactions at a median price of $1,198 psf (in April 2009 four transactions were done at between $1,194 psf and $1,217 psf).

• Three units at Visioncrest were sold in July 2008 at a median price of $2,123 psf, compared with two transactions in June 2009 at a median price of $1,730 psf (in April 2009 the median price was $1,651 psf).

• Six units at Belle Vue Residences at Oxley Walk were sold in August 2008 at a median price of $2,044 psf, compared to 31 transactions in June 2009 at a median price of $1,786 psf (in April 2009 the median price was $1,503 psf).

• Two units at Martin Place Residences at Kim Yam Road were sold in April 2008 at a median price of $1,857 psf, compared with 61 units sold in June 2009 at a median price of $1,536 psf. (in May 2009, a total of 186 units were sold at a median price of $1,423 psf)

• A unit at Miro at Keng Lee Road was sold in October 2008 at a median price of $1,616 psf, compared with 30 transactions in June 2009 at $1,436 psf. There was a fall of 11.13% in median price.

• A unit at Orchard Scotts at Anthony Road were sold in October 2008 at $2,407 psf, compared with a June 2009 transaction at $1,750 psf. There was a fall of 27.29% in median price.


Finding: Despite the spike in transaction volume, sale prices in CCR continue to slide when compared with a year ago. However, in general the improved sentiments recently did edge up sale prices a notch. Let’s look at two typical examples.

(1) 61 units at Martin Place Residences units were sold in June 2009 at a median price of $1,536 which was 17.28% cheaper than the median price of $1,857 psf transacted in April 2008. However, when compared with the 186 units sold in May 2009, the June 2009 median price was about 8% stronger than the $1,423 psf in May 2009.

(2) 31 units at Belle Vue Residences were sold in June 2009 at a median price of $1,786 psf which was 12.6% cheaper than the $2,044 psf median price achieved a year ago. However, the June median price was a 18.8% improvement over the $1,503 psf median price achieved in April 2009.

Conclusion: Housing developers in general appear to be in a hurry to offload units before the flood of completed new home units hit the market in the final quarter of this year.

[B.1.2] Record sales volume at Rest of Central Region (CCR) but prices are falling

In June 2009, a total of 876 units were transacted from 46 projects, compared with 609 new home units sold at 38 projects. This was a 43.8% surge in sales performance over the previous month.

Below are comparisons of sale prices between the whole of 2008 and June 2009 in some selected new condo/apartment projects in RCR.


• 144 units at Dakota Residences at Dakota Crescent were sold in June 2008 at a median price of $978 psf, compared with 27 units sold in June 2009 at a median price of $870 psf. (10 units were sold in May 2009 at a median price of $883 psf)

• 100 units at Clover by the Park at were sold in July 2008 at a median price of $753 psf, compared with 33 sold in June 2009 at a median price of $729 psf. (16 units were sold in April 2009 at a median price of $730 psf.)

• 68 units at Concourse Skyline at Beach Road were sold in September 2008 at a median price of $1,592 psf, compared with 21 units sold in June 2009 at a median price of $1,329 psf. (20 units were sold in May 2009 at a median price of $1,314 psf)

• 47 units at The Peak @ Balmeg at Balmeg Hill were sold in September 2008 at a median price of $1,011 psf, compared with 13 transactions in June 2009 for a median price of $1,019 psf. (two transactions in April 2009 of between $935 psf and $950 psf).

• 34 units at Beacon Heights at the junction of St Michael’s Road and Mar Thoma Road were sold in August 2008 at a median price of $917 psf, compared with 32 units sold in June 2009 at a median price of $777 psf. (four units were sold at a median price of $771 psf in April 2009).

• Four units at Woodsville 28 were sold in August 2008 at a median price of $919 psf, compared with 12 units sold in June 2009 at a median price of $770 psf. (34 units were sold in April 2009 at a median price of $751 psf).


Source of Data: URA website

Finding: The price trend in RCR is similar to CCR with June 2009 median price higher than April 2009 but much lower than last year’s. The same conclusion can be drawn for developers’ pricing strategy in RCR, i.e. they appear to be in a hurry to offload as many as they can.

Median price in June 2009 improved slightly over the previous month due to the support provided by the buying frenzy. However, when compared to the same time last year, median price in RCR still has much lost ground to claw back.

[B.1.3] Sale of primary home units in Outside Central Region (OCR) slides

In all, a total of 432 new home units from 39 projects were sold in June 2009, compared with 442 new home units in 40 projects sold in OCR a month ago. However, when compared to the sales performance of 787 new home units sold from 40 projects in March 2009, the June 2009 figure was a drop of 44.5% in volume. It appears that the buying momentum caused by the droves of HDB upgraders is on the wane.

Below are comparisons of sale prices between the whole of 2008 and June 2009 in some selected projects in OCR.


• 22 units at Breeze By The East at Upp East Coast Road were sold in April 2008 at a median price of $948 psf (with the highest psf price at $1,080 psf), compared with 16 units sold in June 2009 at a median price of $838 psf. (Three units were sold at a median price of $740 psf in April 2009).

• Seven units at The Amery at Lorong K Telok Kurau were sold in July 2008 at a median price of $877 psf, compared with four units sold in June 2009 at a median price of $863 psf. (Three units were sold in April 2009 at prices between $727 psf and $863 psf).

• Seven units at Naturalis at Lorong M Telok Kurau/Still Road were sold in September 2008 at a median price of $909 psf, compared with four units sold in June 2009 at a median price of $830 psf. (Three units were sold in April 2009 at prices between $827 psf and $881 psf).

• Four units at Park Natura at Bt Batok East Ave 6 were sold in February 2008 at a median price of $1,034 psf, compared with two units sold in June 2009 at a median price of $950 psf. (Three units were sold in April 2009 at a median price of $949 psf).

Source of Data: URA website


[B.2] CONDO RENTS CONTINUE TO FALL – ALBEIT SLOWER THAN BEFORE

The number of condo projects that meet the URA criterion of at least 10 tenancy agreements signed in a quarter increased by 40 projects (or 20.7%) from 193 projects in Q1 2009 to 233 in Q2 2009. This may mean higher instances of ‘break lease’ cases – which mean that the tenants may have exercised the ‘diplomatic clause’ and terminated the tenancy agreements earlier, resulting in higher number of tenancy agreements being replaced within the respective projects – hence more entries into the data.

Another telltale sign is the comprehensive rent fall amidst higher number of rental transactions. When the increase in tenancy agreements was caused by higher demand, the rents amount would have gone up instead of coming down. As such, the higher number of tenancy agreements amidst falling rents could have been caused by tenants going through some ‘financial adjustments’ during this difficult time.

Some of the rent drops were severe, for example:

 At District 9, Cairnhill Crest the median rent dropped from $6.43 psf per month to $4.10 psf pm, which worked out to be 35.23% drop in rent.

 In other popular locations such as District 3 Queens at Stirling Road, the median rent dropped $1 psf per month from $4.52 psf pm to $3.52 psf pm or 22.12% slide.

 The median rent at Water Place at District 15 also dropped $1.73 psf pm or 37.7% from $4.59 psf pm to $2.86 psf pm.

The year-on-year comparison of private home rents of 100 quality condos between Q2 2008 and Q2 2009 across different districts. Both sets of statistics for Q4 2008 and Q1 2009 were culled from the URA’s rental price index where information on rents collected at condo/apartment projects with at least 10 tenancies is captured.

 [B.2.1] Median month rent below $2.00 psf

From the statistics available, it appears that in Q2 2009 there were a total of 46 projects (or 20% overall) having their median rent going below $2.00 psf per month. In Q1 2009, only 35 projects (or 18% overall) were renting at below $2.00 psf pm in median rent. These projects are either very old former HUDC flats or are located at outlaying areas including districts 17, 18, 19, and 23.

In Q2 2009, a total of 109 projects (or 47% overall) enjoyed median rent of below $3.00 psf per month. In Q1 2009, 126 projects (or 65% overall) were renting below $3.00 psf pm.

The other 78 projects (or 33% overall) shown in the URA statistics enjoyed rents of above $3.00 psf per month in Q2 2009. The majority of the projects are located near the central business districts including Districts 1,2,3,4,5,7,8,9,10,11, and 15. Only two units at two relatively newer projects in the outlaying districts, i.e. Gardenvista and Lakeshore managed to rent out for $3.32 psf pm and $3.48 psf pm respectively.

In Q1 2009, 39 projects (or 20% overall) featured in the URA record enjoyed rents of above $3.00 psf per month. However, despite the 2-fold increase in the number of projects enjoying above $3.00 psf rent per month, more high-end projects rather than fewer are suffering from sliding rents.

At the very top end of the home rent spectrum, only six projects had units renting out at $6.00 psf pm or higher. The rental prices of high-end condo units in District 9, 10 and 11 also succumbed to the general downward slide. In Q2 2009, only one unit at The Pier at Robertson managed to rent out at above $6.00 psf pm threshold. The unit was rented out at $6.08 psf pm.