Sizzling sale of AMO Residence shows pent-up demand unaffected by rising mortgage rates: Analysts

SINGAPORE: A condominium project that sold nearly all its units on the first day of launch suggests that rising mortgage rates have not dampened pent-up demand for properties in Singapore, analysts said.

Local home upgraders are still drawn to attractively priced private properties in good locations, they added. Others may be seeking a safe investment haven amid rising inflation and economic uncertainties.

AMO Residence, a joint private residential project between developers UOL Group, Singapore Land Group and Kheng Leong Company, sold more than 98 per cent of its 372 units in a single day on Saturday (Jul 23). This means that only seven units were left unsold.

The take-up rate exceeds recent major launches, such as Piccadilly Grand in Farrer Park and Liv @ MB in the Mountbatten area, which each moved close to 80 per cent of units.

“AMO Residence probably smashed all the sale records on its way to the best-selling private residential project in 2022,” said Huttons Asia’s senior director of research Lee Sze Teck.

THE PULL FACTORS 

Industry experts said AMO Residence – the first major new launch in the Outside Central Region (OCR) this year – had several “compelling” attributes in the eyes of buyers.

One of which is its location in the mature estate of Ang Mo Kio and its proximity to MRT stations, amenities and schools. This is attractive to a wide variety of local buyers, especially families with school-going kids, according to Professor Sing Tien Foo from the National University of Singapore (NUS).

Other launches like Piccadilly Grand are located closer to the city centre, which may appeal more to investors, he added.

Colliers Singapore’s director and head of research Catherine He agreed that AMO Residence likely attracted local home upgraders, particularly those who already live in the area.

“The strong demand is likely to originate from upgraders in the vicinity on the back of buoyant private (and) public resale prices. These buyers just have to top up a portion of the buying price on top of their proceeds,” she told CNA.

Price is another factor, with most of the two-bedroom and bigger units priced below the “psychological barrier” of S$2,000 per square foot (psf), Ms He added.

The 99-year leasehold development offers two- to five-bedroom units between 614 sq ft and 1,475 sq ft, and three penthouses between 2,293 sq ft and 2,497 sq ft. Prices start from S$1,890 psf.

Taken together, these helped AMO Residence to stand out in a market which currently has a record low number of new homes, experts said.

“UNSATIATED PENT-UP DEMAND”

The sizzling sales also suggest that local mortgage rates, which have been on the rise along with global interest rates, have not deterred private property buyers so far, the same experts noted.

On the contrary, buyers were “motivated to lock in mortgage rates ahead of further rate hikes”. Some may also think that future launch prices could rise further given firm land prices and elevated construction costs.

“There seems to be unsatiated pent-up demand in the market,” said Ms He, who cited reasons such as support from a tight labour market and continued income growth in Singapore.

She pointed out that rising borrowing costs have not affected “cash-rich buyers”, such as en bloc beneficiaries or those downgrading from larger homes.

Analyst Christine Sun said those looking to preserve their capital amid economic uncertainties are flocking to traditional safe havens such as real estate.

“(Investors) may still park their money here (in Singapore) as our property investment market is considered one of the safest and most stable in the world,” Ms Sun, the senior vice-president of research and analytics at OrangeTee & Tie, wrote in an analysis about the private residential market last week.

Mr Lee from Huttons Asia said rising interest rates are less of a concern for buyers of new property launches, as the loan drawdown is based on construction progress.

But prudent buyers are also exploring alternatives such as using more cash to reduce their exposure to interest rate changes, he said, citing official data that showed the median loan-to-value ratio at less than 50 per cent as of the first quarter of this year.

Some buyers have also adjusted their budget to account for higher interest rates or turned to non-mature estates instead, he added.

Mr Lee reckoned that the impact of rising mortgage rates may only be felt when floating home loans hit 3 per cent. 

“Generally, if a buyer borrows 75 per cent of the purchase price over a period of 30 years, his monthly instalments may rise to around 50 per cent of his income when the interest rate goes up to 3 per cent. Some buyers may feel that this is not acceptable and hold back from buying,” he explained.
 
Others like Ms Sun cited a higher rate of 3.5 per cent, which is the total debt servicing ratio (TDSR) threshold for property loans.

“As the TDSR threshold for property loans uses a stringent 3.5 per cent interest rate computation, there should be sufficient buffer for rates to move before monthly mortgage obligations exceed borrowers' gross monthly income,” she said.

“However, should interest rates edge towards 3.5 per cent, the TDSR may be revised. The market impact will depend on how much the TDSR will be tightened should such a scenario happen.”

BUYERS SHOULD BE PRUDENT

The robust demand for AMO Residence could be a confidence booster for other developers. They may even bring forward their launches, in light of rising interest rates and higher construction costs affecting their margins, Ms He said.

Prof Sing called it a "game against time", with interest rate hikes and the Ukraine war bringing more uncertainties to the market. 

Developers are likely looking to "strike when the iron is still hot" by rolling out more new projects at competitive prices, he said.

But with rising mortgage rates showing no signs of slowing – especially as the US Federal Reserve announced yet another rate hike overnight – experts urge home buyers to remain cautious.

Fixed rate mortgage loans offered by banks have already gone up from about 1.5 per cent at the start of the year to as high as above 3 per cent.

“Buyers need to be aware that interest rate hikes will increase financing costs over the term of repayment,” said Prof Sing, who is director of NUS' Institute of Real Estate and Urban Studies.

Rather than rushing to “lock in the prices at the purchase”, they should be prudent and do careful financial planning when making new home purchases, he stressed.