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Local Property Prices Set For Further Hikes
Perspective | 23 April 2010
By: Xavier Lim
Articles (51) Profile

According to CB Richard Ellis’ report, overall private home prices in Singapore rose by 2%-5% in 1Q10, which was supported by resale transactions. At the same time, DTZ Research (DTZ) also reported that although prices of luxury and prime freehold non-landed homes in 1Q10 were still below the previous peak levels, landed home prices have surpassed the peak levels achieved in 2008. Resale of freehold landed homes and leasehold apartments outside prime districts also saw new peaks in 1Q10.

Despite the compressed yields, government measures and land sites released in the quarter, buyers continued to be out in force. Margaret Thean, Executive Director (Residential) of DTZ remarked that many investors are buying in anticipation of future rise in rents and prices as the economy is improving and the long-term fundamentals of Singapore are strong.

Data Shows Evidence For Uptrend

Newly launched properties such as Interlace sold 80-100 units with an average price of $1,000 psf to $1,200 psf. Nathan Suites sold approximately 25 units with an average price of $2,100 psf. The Residences At W sold approximately 20 units pricing at approximately $2,600 psf to $2,800 psf.

The latest URA new homes sales report shows that March new home sales soared 47% m-o-m to 1,761 units as developers rolled out more launches, bringing 1Q10 sales to 4,446 units, an increase of 134% q-o-q and 67% y-o-y, underlining the accelerating momentum in the market. The sales of high-end projects in the Core Central Region (CCR) are gaining momentum. The number of units sold in CCR was up 37% m-o-m to 717 units. Sales in the Outside Central Region achieved 37.5% m-o-m to 776 units.

According to OCBC Investment Research (OIR), year to date, the market has been able to absorb the new supply of housing units that had been released into the market by developers. Buying activities were centered on high-end properties, which dominated the primary sales market. Mass market properties, which dominated the primary sales market in 2009, cooled off at the end of FY09. However, OIR is seeing a pick-up of activities towards the end of 1Q10. OIR believes that the return of buying activities in the mass market segment, after the spate of anti-speculative measures in February and March, is a sign that there is still genuine demand in the mass market.

Credit Suisse (CS) mentioned in their research report that property prices are directly correlated with accessibility. The new MRT stations along Circle Line have started operations on 17 April. CS’ case studies show that properties near MRT stations was able to fetch a premium of about 15-20% to similar properties, which are not close to these stations. It was supported by evidence that private property prices around Lorong Chuan station have risen 27%-40% since June 2008, outperforming the flat Residential Property Price Index over the same period, in anticipation of the Circle Line opening.

When Supply Cannot Meet Demand

While all of these reports, data and findings are especially good news to property developers, many of them, who were caught off guard by last year’s robust home sales, are now faced with fast depleting land banks. In the research report compiled by DTZ, out of 16 major developers in Singapore, half of them had less than 1,000 residential units left in their land bank as of 28 February this year. While another 5 developers had between 1,000 and 2,000 residential units left. Moreover, these numbers have not taken into account the strong home sales in March. This means that many developers’ land banks would have shrunk further by the end of last month.

So what is this implying to investors? Probably good news! This is because when demand is stronger or greater than supply, prices will go up.

Data from Urban Redevelopment Authority
Data from Urban Redevelopment Authority
*CCR – Core Central Region
OCR – Outside Central Region
RCR – Rest of Central Region

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

Please click here for more information about this author.


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