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PropNex Real Estate Market Analysis July 2009
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  • 1. PropNex Real Estate Market Analysis July 2009 General Economic Environment: GDP & Unemployment The Ministry of Trade and Industry (MTI) recently released an advanced estimate of 20.4% growth in GDP for the latest quarter (2Q09) after a staggering four quarters of shrinking GDP. This was mainly attributed to the escalation in drug manufacturing during the second quarter, rescuing the economy from the recession. In spite of this, pharmaceutical production trends have been known to be volatile, raising concerns regarding the sustainability of this quarter’s GDP growth. Following the growth figure, MTI revised its initial projection of a negative 6 to 9 per cent contraction of GDP released in April to a more optimistic negative 4 to 6 per cent for the year. Despite the pleasant surprise in growth, Manpower Minister Gan Kim Yong cautioned that the risk of job loss would still be present in the following months during a seminar regarding the global financial crisis. Source: Latest Release by Ministry of Manpower, PropNex Research *Seasonally adjusted figures. Unemployment figures for Singapore residents reached an all time high of 87,900, the highest since 2Q05 while the percentage of unemployment for Singapore residents was at a 5 year high of 4.8%, matched only by 1Q04’s 4.9% unemployment. The seasonally adjusted overall unemployment figure hit 95,700 which was a 33% increase from 71,800 in Dec 08 while the seasonally adjusted overall unemployment rate rose to 3.3% in Mar 09 from 2.5% in Dec 08. 1
  • 2. PropNex Real Estate Market Analysis July 2009 Private Property Recovering on back of Greater Demand Sustainability remains the key issue underlying this year’s real estate market occurrences. Despite the weak economic fundamentals and projections of a hazy economic outlook for the rest of 2009, the private home sales sector proved robust against the supposed recession. After a record 14.1% plunge last quarter, URA’s price index has shown definite signs of recovery with a slight dip of just 4.7% to 133.3. Developers recorded sales figures of 1,825 units for the month of June, the new high since the peak of the boom in August 2007 with just 1,731 units sold. New sales for 2Q09 alone bested primary sales figures from the entire of last year, 4,714 units as opposed to 4,264 units respectively. PropNex expected these healthy signs, given that the agency’s 2Q09 private property resale transactions hit a staggering increase of almost 190% Q-on-Q. The total number of new units launched for the first half of this year amounted to 5982; only 125 units shy of the total number of new units launched for the entire year of 2008. Source: URA, PropNex Research Says PropNex CEO Mohamed Ismail: “While the 4,521 new sales sold by developers in 2Q09, up from a mere 2,552 in 1Q09 is not surprising, what is intersting to note is the breakdown of these units in terms of their region.” The Core Central, Rest of Central and Outside Central Regions saw 1,386 (30%), 1,815 (40%) and 1,320 (30%) being sold. This is a vast difference from 1Q09, which saw the three regions recording sale of 222 (8.5%), 712 (28%) and 1,618 (63%) respectively. 2
  • 3. PropNex Real Estate Market Analysis July 2009 In contrast to the bull-run in 2007, where prices were led by the high-end market, this spike in home sales started from Outside Central Region (OCR) mass market projects such as Caspian, Mi Casa and Double Bay Residences. “This can be attributed to the fact that 1Q09 saw many HDB upgraders,” explains Mr Ismail, “while there were more investors taking advantage of the cheaper prices in 2Q09.” Although, he admits, there were fewer speculative purchases in 2Q09 than when the market was booming in 2007. HDB upgraders represented the majority of buyers during the launches of these mass market projects. The 99-years leasehold project Caspian situated at Boon Lay Way was the first of the mass market projects which recorded recession defying sales figures during the 1st quarter of 2009, where 551 out of the 600 units launched in 1Q09 were snapped up in record time. Following its lead in OCR, Mi Casa sold a further 181 units in the latest quarter at Choa Chu Kang, with Double Bay Residences trailing just behind with 168 new units sold. Highest Selling Projects for 2Q09 Median Units Units price Total sold sold Price range Project Name Tenure Locality of units units to in in 2Q09 (psf) sold in date 2Q09 2Q09 (psf) 8@Woodleigh 99-yrs Woodleigh Close 330 330 330 $804 $561 - $1,071 Martin Place Freehold Kim Yam Road 302 274 247 $1,421 $1255 - $1,743 Residences Jalan Raja Udang/Jalan The Arte Freehold 336 327 246 $896 $758 - $1,081 Datoh Mi Casa 99-yrs Choa Chu Kang Ave 3 457 264 181 $633 $578 - $806 Double Bay 99-yrs Simei Street 4 646 425 168 $662 $409 - $728 Residences Kovan Residences 99-yrs Kovan Road 521 330 146 $688 $578 - $817 One Devonshire Freehold Devonshire Road 152 146 146 $1,771 $1,571 - $2,236 The Wharf Residence 999-yrs Tong Watt Road 186 163 140 $1,183 $925 - $1,357 Boon Lay Way/Lakeside Caspian 99-yrs 712 681 130 $623 $546 - $675 Drive Livia 99-yrs Pasir Ris Drive 1 (Parcel 1) 724 486 115 $617 $508 - $653 The Mezzo Freehold Balestier Road 127 127 115 $904 $695 - $1,101 Waterfront Waves 99-yrs Bedok Reservoir Road 405 299 104 $633 $561 - $747 Source: URA, PropNex Research As for the Core Central Region (CCR), more projects were taken up in the latest quarter as compared with 1Q09, making overall take up among the regions more evenly distributed. One Devonshire pioneered the way selling 146 out of 152 of its units during the month of its first launch in June alone. The freehold development in District 9 managed a median price of $1,771 psf. Martin Place Residences also enjoyed an exceptional number of 247 sales during the latest quarter. Initially, 150 of its units were bought up during the 2 weekends of private previews prior to its official launch on May 29. Including 28 units sold in 1Q08, the development sold a total of 274 units to date. The median price of units sold during the latest quarter was 21% lower than when the project first launched in 1Q08 with a price of $1,800 psf. 3
  • 4. PropNex Real Estate Market Analysis July 2009 The Wharf Residence’s relaunch in May 2009 saw 140 of its units taken up, excluding 23 of its previously sold units during its first launch in July 2008. During its first launch last year, CapitaLand had priced units between $1,500 to $1,900 psf. This price was inclusive of stamp duty and under the interest absorption scheme. Buyers who wanted a unit were forced to take up the interest absorption scheme. Fortunately for buyers, this compulsory package became optional during The Wharf Residence’s relaunch. This time, units carried a price tag ranging between $1,300 and $1,600 psf which included stamp duty and the interest absorption scheme. Buyers who choose not to take up the package received an 8 per cent reduction in purchase price. CapitaLand Residential Singapore CEO Patricia Chia was quoted as saying that close to 20% of buyers were foreigners from Indonesia, Malaysia, China, Japan, Canada and Vietnam. The Rest of Central Region (RCR) too had projects which produced outstanding results during 2Q09. The 99 years leasehold project in District 13, 8@Woodleigh, was 100% sold within the first week of its launch in June 2009. Beside the nearby MRT stations, the affordability of its units (1 and 2 bedroom units priced between $370,000 and $440,000) coupled by the presence of the Stamford American International school gave rise to this project’s popularity. Buyers anticipated a demand for their units from expatriate families. Factors contributing to the sudden surge in private home sales Mr Ismail mentioned that other factors which caused the 77% increase in the number of sales were the greater market confidence, the rallying stock market, attractive pricing by developers for new launches, the increased willingness of people to buy and low mortgage interest rates. “These are buyers,” says Mr Ismail, who have adopted at least a mid-term view that the market fundamentals will have corrected by then (3 years’ time). The following presents a more detailed explanation of some of the important factors giving rise to the improving market sentiments. 1) Liquidity amassed during the boom seasons of 2007. Although HDB upgraders led most of the sales in the mass market projects launched, mid to upper-tier private market homes too experienced increases in sales (eg. Alexis, The Arte, The Mezzo, and One Devonshire). Private purchasers involved in these projects may have profited from the enbloc waves of 06-07, and decided that now was the opportune time to purchase given the affordability of the new units as well as developers’ discounts. 2) Affordability of units 4
  • 5. PropNex Real Estate Market Analysis July 2009 The bulk of new sales made this year was attributed to the success of mass market projects like Caspian, Mi Casa and Double Bay Residences. In addition, with the provision of more studio and 2 bedroom apartment units available, absolute price quantum sat comfortably below $1m. In view of the initially gloomy economic outlook, certain developers reconfigured their designs to produce more shoe-box units, sizes ranging between 340sf to 750sf. Alexis for example, had more than 70% of its units redesigned into these smaller units to allow a lower price tag. 3) Interest absorption schemes offered by developers. Although the deferred payment scheme (DPS) offered by the government was withdrawn in October 2007, the idea continued through the Interest Absorption scheme (IAS) offered by developers. In the IAS, developers absorb all interest payments of the property till its T.O.P has been issued, which could be between 2 to 3 years time after launching. The drawback of the IAS however, is that for certain developments; buyers had to pay an overall premium of 2 to 5 percent on their property. In addition, they were only allowed to take the loan offered to them by a specific bank the developer had a tie up with. Despite these disadvantages, buyers saw this as an opportunity to purchase what they would have otherwise been unable to afford, probably hoping to sell these units in the sub sales market for a profit when demand picked up. 4) Low interest rates offered by banks. Private Home Loan Rates UOB OCBC StanChart Maybank DBS 2-Year Fixed 3-Year Fixed Sibor Fixed Floating Rate Floating Rate Rate Rate Rate Year 1 - 3.5% Year 1 - Year 1 - Year 1 - 1.6% Year 1 - 1.5% (1% off Homeplus rate) 1.6% 1.99% Year 2 - 3.75% Year 2 - Year 2 - (0.75% off Homeplus Year 2 - 1.6% Year 2 - 2.5% 2.2% 1.99% rate) Thereafter - 4.0% Year 3 - Year 3 - Year 3 - 1.6% (0.5% off Homeplus rate) Thereafter 3- 2.9% 1.99% mth Thereafter Current Homeplus Thereafter Thereafter Sibor + 1.25% 3- or 12-mth rate at 4.5% p.a 3.75% 3.75% Sibor + 5
  • 6. PropNex Real Estate Market Analysis July 2009 1.75% Source: UOB, OCBC, StanChart, Maybank, DBS *Different terms and conditions specific to the individual banks will apply. Aside from the interest rates pegged to the Interest Absorption scheme, other home loan rates offered by banks have been relatively low as compared to the highs of 2007. These low interest rates encouraged borrowing which in turn helped in the increase of home sales. 5) HDB Resale price index overtakes the Private residential price index Source : URA, HDB ,PropNex Research What began as a narrowing gap between the two indexes resulted in an overtaking of prices for the HDB Resale price index. HDB’s resale price index recorded 140.2 points in 2Q09, signifying a 1.4% increase from the previous quarter. URA’s private residential property index fell from 139.9 points in 1Q09 to 133.3 points in 2Q09. This represented a decline of 4.7%, compared with the 14.1% decline in the previous quarter. Secondary market sales were affected by the improving market sentiments as well. The secondary market for private home sales experienced a significant % of HDB purchasers, 50.3% in 1Q09, and 41.6% in 2Q09. In the latest quarter, a total of 1959 HDB purchasers were recorded, highest since the boom in 2Q07. 6
  • 7. PropNex Real Estate Market Analysis July 2009 Source: URA, PropNex Research Overall, Mr Ismail is optimistic about the future, which he says “looks positively rosy.” He expects this trend of recovery to continue over the next two quarters, with the fourth quarter’s index recording a positive growth. Demand for HDB set to rise for 2H09 After a slight stumbling dip of 0.8% the previous quarter, HDB’s resale price index (RPI) for 2Q09 has climbed up by 1.4% to an all-time high of 140.2. Despite the still-increasing demand for private properties, PropNex CEO Mohamed Ismail is not surprised to see growth for the HDB RPI. He supports this statement with the fact that PropNex alone has seen a Q-on-Q increase of 48% for HDB resale flat transactions for 2Q09. Another interesting point noted by Mr Ismail was that the number of resale applications for 5- room and executive flats increased by 80% and over 100% respectively Q-on-Q. He compares this with the last three quarters before that when the two flat types saw a steady decline due to the poorer economy. These numbers are a clear sign that people’s market confidence is growing. “One reason for this, as feedback from the ground indicates, is that demand in matured estates far exceeds supply,” Mr Ismail explains. 7
  • 8. PropNex Real Estate Market Analysis July 2009 “And this is because the cash-over-valuation (COV) for HDB flats is still low at the moment,, with overall COV at $3,000, the lowest for the last two years” he explains. “In fact, the overall COV for larger flats is practically non-existent, and this has sustained the demand for HDB resale flats. Many first-time and buyers are now encouraged to take advantage of the various government grants to obtain a flat in the short-term.” Normally, when the COV is higher, they would look instead to BTO and DBSS projects. However, buyers have to wait three to four years before they can move in. The increased number of PRs in Singapore is also taking advantage of the low COV to buy flats. As the demand is strengthening quickly, sellers are expected to demand a higher COV. As such, Mohamed Ismail expects the RPI to rise by 4–5 points over the next two quarters to reach about 145 by the year’s end. He also forecasts the total number of resale flat transactions to exceed 32,000, surpassing the last three years which all fell below 30,000, as the mid-year mark has already hit 16,630. END For enquiries, please contact us at enquiry@propnex.com. Mohamed Ismail (CEO) Adam Tan (Corporate Communications Manager) Izaac Fong (Research Executive) 8