Sentiment cools in Singapore’s residential market

Buying sentiment in the Singapore residential market cooled during the second quarter of the year, according to a report by DTZ Research.

The research report, published today, noted that market activity in the private residential market picked up early in the quarter but slowed in mid-quarter as buyers remained on the sidelines due to the uncertainty regarding European sovereign debts, local stock market jitters and increased land supply from the Government Land Sales (GLS) programme.

The proportion of higher-priced homes which changed hands during the quarter continued to grow. The share of purchases for units with a price of at least S$3 million (US$2.21 million) edged higher to 10 per cent of all transactions recorded in the quarter, slightly higher than the 9 per cent recorded in Q1 2010.

As expected, most of the transactions amounting to S$3 million and above were done in the prime districts of 9, 10 and 11. A sizable share took place in the emerging residential areas of districts 1 and 4 which includes the Central Business District and Harbourfront/Sentosa areas.

The proportion of non-landed sub-sales to total non-landed transactions in Q2 2010 was 10 per cent, a decline from the 13 per cent in the previous quarter. According to DTZ this is likely due to a combination of subdued sentiments in May and June along with the implementation of the seller’s stamp duty in February 2010 which kept a check on the already low level of sub-sales.

The median sub-sale price of non-landed private residential properties was S$1,200 per sq ft, remaining largely unchanged from the S$1,198 per sq ft a quarter earlier.

In Q2 2010, projects which saw the highest number of sub-sale transactions were One Amber and The Parc Condominium. One Amber was granted Temporary Occupation Permit (TOP) in the quarter while The Parc Condominium was granted TOP in July 2010. Subsale activity tends to be high just before and after a project is completed.

The increase in median prices varied across different projects. At One Amber, the median price of sub-sale units was unchanged at S$1,200 per sq ft in Q2 2010, while The Parc Condominium saw a 1.5 per cent rise in median price to S$975 per sq ft for its sub-sale transactions.

The project with the biggest change in subsale prices was the higher end Marina Bay Residences. It saw a 10.9 per cent jump in price from S$2,508 per sq ft in Q1 2010 to S$2,781 per sq ft in the quarter. The median price for The Regency at Tiong Bahru rose 8.6 per cent to S$1,292 per sq ft.

A total of 33 per cent of all private units transacted in the quarter were bought by purchasers with public housing addresses. This proportion looks to have stabilised at around the 34-36 per cent mark after hovering within this range for the past three quarters. It is higher than the 22 per cent in 2007 when the property boom was led by the higher-end segment. In contrast, the current buying wave is mainly in the lower end market segment which is buoyed by rising public housing resale prices.

DTZ said there is a clear shift with buyers increasingly paying above S$1m, especially those with public housing addresses. This shift is due to prices having risen almost 20 per cent since Q3 2009, according to the residential property price index compiled by the Urban Redevelopment Authority (URA).

The proportion of purchasers with public housing addresses who bought units of above S$1 million stood at 43 per cent in the quarter, compared to 36 per cent in Q1 2010. Similarly, purchasers with private addresses who made purchases of above S$1 million have risen to 73 per cent from 69 per cent a quarter earlier.

Projects with a high volume of purchases from public housing addressees in the quarter included Waterbank at Dakota and Tree House, where the median transacted price was S$1,173 and S$832 per sq ft respectively.

Singaporeans’ share of private home purchases continued to rise from 71 per cent in Q1 2010 to 74 per cent, while Singapore Permanent Resident (SPR) buyers’ share fell to 13 per cent of total private home purchasers. Foreigners’ share of total purchases in the quarter maintained at 11 per cent as they remained cautious due to the slow economic growth in US and Europe. Purchases by companies stood at 2 per cent of total transactions, as investment funds also remained at the sidelines.

For private residential homes priced up to S$500,000, Singaporeans’ share decreased in the quarter to 79 per cent from a high of 89 per cent in Q1 2010. SPRs picked up the slack, constituting a sizable 17 per cent. Most of the transactions within this category are small sized units located in the suburban areas.

The Interlace saw the largest number of foreign purchasers in Q2 2010, followed by The Laurels. City Square Residences, Cyan and Citylights continue to be among the top projects bought by foreigners for the second consecutive quarter. Melville Park located in the suburban neighbourhood Simei continues to remain popular among SPRs. Another project located in the eastern region which was well received by SPRs in Q2 2010 was Changi Rise Condominium which achieved a median transaction price of S$693 per sq ft.

Buyers from the top four countries of non-Singaporean buyers, namely Malaysia, Indonesia, China and India, remained largely unchanged. They made up 69 per cent of total transactions by foreigners and SPRs in the quarter. This proportion averaged 70 per cent in the past three quarters. Malaysians continued to dominate among the four groups, accounting for 22 per cent of total transactions by non-Singaporeans in the quarter, unchanged from Q1 2010.

Historically, the Malaysians and Indonesians were the two highest non-Singaporean purchaser group However, the mainland Chinese buyers are closing in on the Indonesians as the second highest non-Singaporean purchasers group. Mainland Chinese buyers made up 17 per cent of non-Singaporean purchasers in Q2 2010, slightly lower than the 18 per cent in Q1 2010. The Indonesians constituted 18 per cent of all non-Singaporean purchasers both in Q1 and Q2 2010.

Buyers hailing from mainland China have captured much media attention with their increasing numbers and notable purchases. This is largely due to their increasing wealth and mobility on the global scene. Singapore, with its political stability, transparent and well regulated market, is one of the countries that the mainland Chinese buyers are attracted to. With respect to total non-Singaporean purchases, the share of transactions by mainland Chinese has risen from 7 per cent in 2006 to 17 per cent in H1 2010.

Factors such as language and culture also come into play. Singapore has a majority of ethnic Chinese and most are conversant in English and Mandarin. The relative ease of adjusting to the culture and the bilingual environment attracts many mainland Chinese to come here to work or to send their children here to study, and consequently to purchase homes for own occupation or investment. The rising real estate prices and property purchase curbs back in China have also motivated the mainland Chinese further to look at overseas markets for diversification and investment opportunities.

For non-landed properties, mainland Chinese buyers generally prefer Districts 15, 16 and 23, with about 10 per cent of them purchasing homes in each district. In comparison, there were only 5-6 per cent of them making purchases in each of the prime districts 9, 10 and 11. The difference is due to the diverse mix of these Chinese nationals as they range from SPRs who have lower budgets to rich mainland Chinese foreigners.

SPRs generally buy properties in locations like Districts 22 and 23 (Jurong, Choa Chu Kang) which are near their workplace in the west. On the other hand, well-to-do mainland Chinese, similar to other wealthy foreign buyers, have a soft spot for the traditional prime districts of 9, 10 and 11. In addition, they also fancy waterfront areas in Sentosa Cove and District 15 (Katong, East Coast) which has many condominiums facing the sea and where some schools renowned for their emphasis on the Chinese language are located.

For landed properties, the Chinese buyers showed a clear preference for homes in Sentosa Cove compared to buyers of other nationalities. This is due to the opportunity to own landscaped grounds with waterfront facing in a resort-style living environment, at prices lower than similar properties in China and Hong Kong. The proportion of Chinese buyers among all non-Singaporeans purchasing landed units in Sentosa Cove shot up from 38 per cent in 2009 to 60 per cent in H1 2010.

For both landed and non-landed homes at Sentosa Cove, the proportion of mainland Chinese buyers over all non-Singaporean buyers has grown from 7 per cent in 2008 to the current 29 per cent in H1 2010.

In summary, DTZ said buying sentiment in the residential market has improved since the end of Q2 2010, on the back of the government’s upward revision of the full year GDP growth to 13-15 per cent, and the continued low interest rate environment. However, buying activity is more selective due to the higher prices and are mostly in the lower and mid-tier segments.

While there is more upside potential for the higher-end market as prices are still some way off the previous peak, buying activity is more sporadic as high net worth individuals remain cautious over the global economic situation. The slow economic growth in Europe and the U.S. will continue to add caution to the segment until there is greater certainty on their recovery.