Analysts expect private home prices to rise further on tight supply and strong demand

Analysts expect private home prices to rise further on tight supply and strong demand

condo showroom
Prospective buyers at a condominium showroom. (File Photo: TODAY)

SINGAPORE: Hot sales at private property launches in March have further drawn down on a fast-dwindling stock of units – fanning an expected rise in home prices, experts said.

A total of 1,296 new private homes were sold last month, about double the 645 sold in February.

The figures cap off the first quarter of the year, in which private home prices rose 2.9 per cent, according to flash estimates from the Urban Redevelopment Authority (URA).

The figure marked the sharpest quarterly increase since Q2 2018, when prices rose by 3.4 per cent, triggering a round of cooling measures.

All eyes will soon be on full real estate statistics for the first quarter – out on April 23 – with experts expecting the final rise in private home prices to be steeper than what flash estimates had indicated.

This is because the estimates had not captured a bulk of sales that took place at the end of March, with launches such as the Midtown Modern in Bugis.

READ: Industry players should not 'stoke exuberant sentiments' in property market: Indranee Rajah

WHY ARE PRICES RISING?

March’s strong sales have now lowered the stock of uncompleted, unsold units in the market, and this depleting inventory has been a factor in the continued rise in prices over the past few quarters, the experts said.

“As of Q4 2020, we were left with 24,296 uncompleted, unsold units in market. Compared to the peak of slightly over 33,000 in this cycle, it has come down a lot,” said Lee Sze Teck, Head of Research at Huttons Asia.

He added that now, the figure probably stands between 21,000 and 22,000.

Many recent launches were also from the last tranche of sites sold in the en bloc cycle of 2017 to 2018, said Christine Sun, Senior Vice President of Research & Analytics, OrangeTee & Tie.

“After that, there was a hiatus of (sales) for about two years plus, so if buyers want to wait for the next batch of launches, it means they must wait two to three more years,” she said.

READ: One-North Eden: First condo launch in Singapore’s ‘Silicon Valley’ in 14 years

While supply is tightening, demand is holding steady, or even increasing, as buyers believe that the worst of the recession and pandemic are over, said Ong Teck Hui, Senior Director, Research & Consultancy, JLL Singapore.

The trend of rising prices has also pushed more buyers to sign on the dotted line, as they want to enter the market before prices go up further, he said.

Ms Sun concurred: “If you are looking at the whole situation with the global economy, most are expecting it to recover from this year onwards.

“So if Singapore is also going to recover… then the likelihood for prices to go up further will be higher. There is not much reason or impetus for prices to fall.”

Analysts also said demand has been supported by ample liquidity in the market and low interest rates. Yet, authorities have repeatedly warned buyers about possible rises in the latter, and the need to be prudent about long-term mortgage obligations.

WATCH: Singapore ready to adjust policies to maintain stable property market

When asked if rising price indices could be linked to a practice of developers elevating prices - and then offering buyers a discount, analysts were uncertain about if this was happening.

Nevertheless, Ms Sun said that the firm’s agents have seen some developers revising prices upwards for launched projects, as there is no pressure for them to clear units quickly.

“If let’s say I only have 10 to 20 per cent of stock left, I can revise my prices upwards because I still have maybe one to three more years (to sell everything),” she said, referring to a five-year deadline to sell all units in a project, so as to avoid a levy.

Mr Ong added: “Offering price discounts for new home purchases by developers is a common practice but buyers are knowledgeable enough to compare the nett prices after discount among different projects.

“In a rising market, projects are likely to be launched at higher prices than those of earlier launches, which is a major factor contributing to the overall price increase in the market.”

POSSIBLE COOLING MEASURES?

Growing prices have heightened the possibility of cooling measures, the experts said.

The flash estimates for Q1 2021 represent the fourth straight quarter of price increases, following rises of 2.1 per cent, 0.8 per cent and 0.3 per cent in the quarters before.

But the analysts believe authorities will also be keeping tabs on other indicators, such as economic growth.

READ: Singapore economy grows 0.2% in Q1, first expansion since COVID-19 outbreak

Mr Ong noted that in 2020, private home prices rose 2.2 per cent, but gross domestic product (GDP) growth fell 5.4 per cent.

But in 2021, GDP growth has been forecast to be 4 to 6 per cent, while home prices have risen 2.9 per cent so far.

He added that the last time cooling measures were implemented, the private land sales market was heated and robust.

Yet at the moment, the pick-up in the private land sales market has been moderate so far, he said.

Authorities may also look at the global situation, Ms Sun said, noting that property prices are currently on the upswing in many other countries.

Huttons’ Mr Lee also said that any decision affecting the market would be very carefully considered.

“Bearing in mind that the economy is just starting to come out of a recession, should there be measures, it will have a lot of repercussions on other sectors such as banking, construction – right down to retailers, home furnishing and renovation,” he said.

READ: Which city are the super-rich flocking to buy homes in? Hint: It's not Singapore

Should cooling measures be needed, analysts expect authorities to use existing levers, such as the Additional Buyer’s Stamp Duty (ABSD) or loan-to-value (LTV) limits.

In 2018, ABSD rates were raised for those buying their second or subsequent residential properties.

Meanwhile, LTV limits were tightened for housing loans granted by financial institutions.

READ: New property cooling measures announced: Higher ABSD rates, tighter loan limits

Ms Sun suggested another way of slowing price increases: “Increasing supply will work too … A possible way is to increase Government Land Sales (GLS). That is also one of the fastest and most direct ways.”

On Thursday, authorities released two sites under the first half of the GLS programme – a mixed-use plot at Lentor and an Executive Condominium site at Tampines.

They can potentially offer a total of 1,195 residential units, going some way to boost unsold inventory.

Source: CNA/cl

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