Worrying trends in the Singapore property market

By Mr. Propwise

I've noticed some interesting and worrying trends in the Singapore property market that I'd like to share with you, and also delve into what they mean for the property investor and own-stay home buyer.

HDB prices are rising faster than private property prices

Last week the Urban Redevelopment Authority (URA) reported that the private residential price index grew 1.3 per cent in the 3^rd quarter of 2011. Contrast this with the HDB's Resale Price Index (RPI), which rose 3.8 per cent from the previous quarter.

This increase in HDB prices is despite the 23,800 new units the HDB has pushed out in the first three quarters. The impact was not felt on prices but in the transaction volume for resale flats, which fell 10 per cent to 5,903 units in the 3^rd quarter from 6,581 units in the 2^nd quarter.

The HDB will launch another 4,200 build-to-order (BTO) flats in November, bringing the total number of flats launched this year to 28,000. And don't forget that there is another 25,000 BTO flats to be launched next year.

The puzzling thing for many is how the prices of HDB flats are still rising despite the large amount of supply being pushed out. A case in point is the 888-unit Trivelis in Clementi, which is being developed under the Design, Build and Sell Scheme (DBSS). Prices of the 646 sqft three-room flat units ($375,000 to $470,000), 861-883 sqft four-room flat units ($530,000 to $650,000) and 1,130 sqft five-room flats ($658,000 to $770,000) are more expensive than the surrounding resale flat prices!

Private home buyers are in a cautious mood

The PPI's 1.3 per cent increase is the 8^th consecutive quarter of slowing growth, which many market observers attribute to both demand (growing uncertainty in global economic situation) and supply (government ramping up supply of public housing) factors.

Regardless of the cause, buyers are becoming increasingly cautious, especially in the high end segment. The URA reported a price increase in non-landed properties in the Core Central Region (CCR) of just 0.7 per cent, and a fall in transaction volume of 61 per cent on a quarter-on-quarter basis.

Given the upcoming launches in the 4^th quarter, many analysts expect a fall in the take-up rate even if prices remain stable. So it's clear that the market is cooling down. The million dollar question is — will prices fall?

Developers are turning cautious, too

In the latest survey conducted by the National University of Singapore and the Real Estate Developers' Association of Singapore (READAS), the Current Sentiment Index for property developers dropped from 4.6 in the 2^nd quarter to 3.6 in the 3^rd quarter, while the Future Sentiment Index dropped from 4.4 in the 2^nd quarter to 3.4 in the 3^rd quarter. This dragged the Composite Sentiment Index down from 4.5 to 3.5 respectively.

Developers also turned cautious on the office segment as shown by the future net balance (the difference between respondents who believe the office segment will do better and those who think it will do worse), which staged a dramatic turnaround from +42 per cent in the 2^nd quarter to -57 per cent in the 3^rd quarter. This was attributed to weakening demand from the banking and financial services industry, which in general is having a tough time this year with weak markets and trading volumes.

Interestingly, 56 per cent of developers expect prices to remain unchanged while 37 per cent predict a moderate decline. The percentage of developers expecting a decline more than doubled from 17 per cent in the previous quarter.

Investors are going into industrial and commercial properties

Jones Lang LaSalle's study of URA Realis caveat data shows that investors with a sub-$1.5 million budget are moving away from residential properties into commercial and retail properties. The private residential sector's share of caveats fell from 96.6 per cent in 2^nd quarter 2009 to 87.2 per cent in 3^rd quarter 2011. Investors have both been driven by push (government measures to cool the residential market including the harsh stamp duty) and pull (higher yields for these properties) factors.

In particular, small industrial units with low prices and PROMISES of higher yields are very popular with investors. Have they thought about what the real rental demand is going to be once these units are completed? What sort of businesses will be renting them?

My take on what these trends mean

All in all I believe that these trends are worrying. Middle income families are rushing to buy high-priced HDB flats and mass market residential properties and small-time investors are snapping up "shoebox" industrial units with a fairly ambiguous rental market. At the same time the wealthy and developers (the "insiders") are turning cautious on the market, and the weakening global economic situation means that the yields of the industrial and commercial properties could be at risk. Which group do you think has a better grasp of what is going on in the market?

I caution all investors to study the market carefully before committing your hard earned cash and credit to a property investment. Make sure you know what you're buying and if you are expecting a yield, to do your due diligence on what the real rental demand for your property will be. If you're buying for your own stay, don't just rush into the next new launch and be impressed by the designer showflats. If you spend a bit of time and effort looking around in the same area, you could find real "bargains" at 20 per cent to 40 per cent off the price of a new flat.

This article is posted courtesy of www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. Get your free Property Beginner's and Buyer's Guide here.

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