Improved Buying Sentiment Set to Continue

Singapore, 17 Oct 2016 – The Urban Redevelopment Authority (URA) released its flash estimate of its private property index for Q3 2016 earlier this month. Many were surprised at the reading, which showed a 1.5% price decrease. This was the steepest decline since 2012.Perhaps as a consequence of the continued price falls, buyers have been entering the market. 4,352 caveats were lodged in the months of July to September. Although this is not the final figure for Q3, it is already higher than the 4,159 units transacted in the corresponding period a year ago. The positive buying sentiment appears to have spilled over to the last quarter of the year. The Alps Residences and Forest Woods, launched within a week of each other, both recorded impressive sales.  Buyers bought 280 units at The Alps Residences and 337 units at Forest Woods during their launches. These figures translate into a 45% and 65% take up rate respectively.

Empirically, we observe that there are two distinct groups of buyers.

The first group consists of property investors. These buyers are primarily interested in buying a unit, then letting it out for rental income. Using the sale of small units (mainly one and two bedders) as a proxy for investment demand, it can be seen that sales at these two projects were very much investment driven. Small units accounted for 86% of the sales at The Alps Residences, and all one bedroom units have been sold. Similarly, at Forest Woods, 66% of all units sold were small units.

This reflects investor confidence in the local property market. Although the private residential rental market is currently feeling the effects of an oversupply, it is unlikely that this situation will persist for a long time, as the government has been scaling back on the provision of land sites for private housing. The private residential rental market is therefore expected to improve in the next few years. Thus, new project launches have been rather well received by investors because there is a construction period of about three years. As such, owners will only have to start looking for tenants when the building is almost completed. By then, the rental situation could have improved and it might be easier to find a tenant willing to pay a higher rent.

Also, project specific factors come into play too. In particular, these two developments benefit from their location. The Alps Residences is located in Tampines, which is Singapore’s first regional centre and a major employment node. Other major commercial centres near it include Changi Business Park and Changi Airport. Thus, rental demand is expected to be high. Forest Woods, although lacking a regional centre address, makes up for it with its superb transport connectivity. It is only a five minute walk away from Serangoon Mass Rapid Transit (MRT) station, which functions as an interchange between the North-East and Circle lines. This makes commuting a breeze, which would appeal to tenants. Hence these unique attributes contribute to strong investment activity at these two projects.

The other significant group of buyers is made up of owner occupiers, either upgraders from public housing or affluent young couples looking for their first home. To this group of people, because they are buying for their own stay, in order for them to commit to a purchase, there has to be a combination of location, price and product. To this end, The Alps Residences and Forest Woods have delivered.

The Alps Residences, being in Tampines, is proximate to many amenities. Families will be attracted to the three malls in Tampines, which house retailers such as Isetan, BHG, H&M, Muji, Topman and Uniqlo. Also, primary to tertiary educational institutions are located in Tampines, making schooling an ease for residents at The Alps Residences. Combined with a relatively affordable price point, it is not difficult to see why many have bought units for their own stay.

Forest Woods, despite being the pricier of the two, found favour with buyers for its attractive location. It managed to strike a balance between price and location, for which buyers felt was a good deal for a development with a city fringe location and a short walk away from a MRT interchange.

As seen from the numerous successful project launches this year, we see more buyers returning to the market.  With buyer sentiment improving, we fully expect this trend to continue. Developers, mindful of current market conditions, will build on success stories when launching their projects. Buyers can then capitalize on this window of opportunity to pick up a great selection of value buys.

By Eugene Lim, Key Executive Officer and Seah Yao Hui, Assistant Manager, Research