Residential Market Watch Q1 2020
Covid-19 the economic contagion
Two waves of contagion were created by Covid-19. The first is a disease-based contagion that threatens human lives as it overwhelms domestic healthcare and social protection systems. The second wave is the adverse effects of Covid-19 on both the economic demand and supply sides that is sweeping through more and more countries. Governments need to respond swiftly with adequate and integrated policies to prevent this outbreak from turning into an even bigger crisis which will affect businesses and livelihoods.
In Singapore, the government has gone the extra mile to support the real estate market by waiving property tax and allowing access to credit to help landlords and occupiers weather the storm. Homeowners can apply to defer repayments of property loans until 31 December 2020. Interest will only accrue on the deferred principal amount.
By the end of Q1 2020, the impact of Covid-19 on the residential market has begun to unfold, with more to come. The URA’s private residential price index fell by 1.0% q-o-q, after three quarters of positive growth.
Within the non-landed segment, the Core Central Region (CCR) price index bore the brunt with a 2.2% decline q-o-q, while the price index of the Rest of Central Region (RCR) and Outside Central Region (OCR) eased by 0.5% and 0.4% q-o-q respectively.
The decline of prices in CCR was mainly due to the lower price point of new project The M, which saw strong sales. Prices of landed homes transactions also contributed to the decline. New projects in RCR and OCR that were scheduled for March did not happen as the outbreak intensified, social distancing measures such as mandatory quarantine, travel restrictions, and closure of borders were also introduced.
Market dynamics at work
Of the 11 new projects launched in Q1 2020, seven are located in CCR, two are located in RCR and the remaining two in OCR. The top performer of the quarter was The M, located at Middle Road, garnering 389 sales, or 74% of its total units. Besides its strong location attributes and proximity to Bugis interchange station, its pricing was the main draw, being 16% lower than the nearby Midtown Bay that was launched in Oct 2019.
In the absence of major project launches in RCR and OCR, homebuyers were attracted to projects that have been in the market for a year or more, seeing more value because of their relatively lower price points compared to new projects. These include Jadescape, Parc Esta, Treasure At Tampines and Parc Clematis.
In total, developers launched 2,093 new homes for sale, 14% lower than the 2,422 units launched in Q4 2019. Including units from ongoing launches, they sold 2,149 new homes, 13% lower than in Q4 2019. The units sold were distributed as follows: 546 (26%) in CCR, 765 (36%) in RCR and 778 (38%) in OCR. The latter two locations registered higher sales because of their more affordable pricing and locations within or near the HDB heartlands.
In the secondary market, 2,080 resale homes were transacted in Q1 2020, 11% lower than the number sold in Q4 2019. Some 1,048 units (50%) of the transactions were in OCR while 519 units (25%) and 513 units (25%) were located in the RCR and CCR respectively.
Luxury transactions in Q1 2020 included eight bungalow deals in the Good Class bungalow (GCB) Areas, four Sentosa Cove bungalows and 58 luxury apartments. In comparison, there were 11 deals in the GCB Areas, one Sentosa Cove bungalow and 87 luxury apartments sold in Q4 2019. Of the three segments, only Sentosa Cove saw a pick up in sales momentum due to a timely match between buyers and sellers.
Notable transactions in Q1 2020 included a bungalow at Cluny Park that sold for $40 mil ($1,964 psf), a bungalow at Cove Grove that sold for $24 mil ($2,464 psf) and a penthouse in Wallich Residence that sold for $17.5 mil ($4,987 psf). Interestingly, seven units of Le Nouvel Ardmore were sold in Q1 2020, compared to only five units in the whole of 2019. The seven units fetched between $15 mil and $18 mil.
In Q1 2020, 161 non-landed homes in CCR were bought by permanent residents (PRs) and 110 units were bought by foreigners (NPRs). While the number of PRs showed a q-o-q increase of 26%, the number of NPRs fell by 30% q-o-q. The significant fall in the latter could be attributed to the travel restrictions that were imposed from February onwards. It is likely that the number of NPR buyers would fall further in Q2 2020 as the travel restrictions are still in place.
Rental market & vacancy
The rental market performed relatively well in Q1 2020. The overall rental index rose by 1.1% q-o-q, reversing the 1.0% decline in Q4 2019. The uptick was supported by the stronger rise of 1.3% q-o-q for non-landed homes, which almost wiped out the 0.9% q-o-q fall in the rents of landed homes.
By locality, the OCR rental index showed the largest rise of 1.9% q-o-q, followed by a 1.4% rise in the CCR and a marginal 0.6% rise in the RCR index. The rise in rents could be attributed to a few reasons. Firstly, it was the beginning of the year and there was a combination of new leases and expiring leases due for renewal. Secondly, due to the Chinese New Year season, and later, when safe distancing measures were implemented, tenants did not have enough time to source for a home of their choice, nor to negotiate for lower rents. Thirdly, landlords of new developments (mostly located in OCR) and newly renovated homes held firm to their rental expectations.
There were 20,322 vacant homes at end-March, down from 20,479 units in Q4 2019. In fact, this number had been steadily falling from a high of 30,310 units in Q2 2016. By the same token, the vacancy rate had fallen from 8.9% then to 5.4% in Q1 2020, partly contributed by the reduction in new completions.
Only 1,528 new homes were completed in Q1 2020, compared to 2,298 completed units in Q4 2019. Some of the new projects completed were Queens Peak (736 units), Le Quest (516 units), Bideford Hills (168 units) and Luxus Hills (35 units). Although URA statistics show that another 4,219 units will be completed by end-2020, it is likely that the number will be lower due to the stop work order from 7 April to 1 June in order to stop the spread of Covid-19. The total housing stock stood at 374,925 homes in Q1 2020.
Supply in the pipeline
The total supply of uncompleted homes was 48,868 units at end-March, down from 49,713 units at end-December 2019. Of the 48,868 units, 19,719 units (40%) have been sold by end-March. The balance of 29,149 unsold units comprised 19,363 units (66%) from projects that were either launched or not launched yet and 9,786 units (34%) from projects that did not have the prerequisites for sale.
Clavon (640 units) at Clementi Avenue 1, a project at Bernam Street (380 units), Mountbatten Residences (290 units) and Perfect Ten at Bukit Timah Road (230 units) were some of the major new projects which obtained approvals for development in Q1 2020.
Two residential sites from private supply were sold in Q1 2020. One is located at Florence Road with a land area of 15,877 sq ft and a plot ratio of 1.4. The other is a 12-unit apartment at Sophia Road with a land area of 12,328 sq ft and a plot ratio of 2.1. Both sites could yield 50 new homes.
Under the Government Land Sales (GLS) program, five parcels of residential sites, including one executive condominium (EC) parcel were sold. The sites could yield 1,235 residential units and 480 EC units.
The residential site at Irwell Bank Road was most closely watched because it is a prime site located at the fringe of Orchard Road and is within walking distance to the upcoming Great World City MRT station. Its winning bid of $1,515 psf/plot ratio is about 13% lower than the price paid for the site of Riviere back in December 2017.
Covid-19 a game changer?
In early-April, the government implemented a four-week ‘circuit breaker’ (CB) to stem the spread of Covid-19 within the community. To minimise human contact, schools are shut and workplaces of all non-essential businesses and services are to be closed so that employees work from home. As a result, all property viewings were suspended and sales galleries closed during this period. By mid-April, the government decided to extend the CB by another four weeks to 1 June.
Preliminary numbers for April showed that around 200 each of new and resale homes were sold. These buyers could have viewed the properties before the CB began.
Sales numbers for May are expected to be more muted. We are aware that some of the projects lined up for launch in Q2 2020 have been postponed, such as Cairnhill 16, Forett @ Bukit Timah, The Landmark and Verdale. Meanwhile, developers and marketing agents are optimising the use of virtual technology to engage prospective buyers. Even if lockdown measures are eased after 1 June, buyers’ sentiments towards real estate will remain cautious as their focus will be on the economy and job security.
With the economic uncertainty, prices might ease further in the coming months. Sellers in the secondary market would be under pressure to sell at a discount if they are need to dispose their properties within a short period of time.
Just as Covid-19 has forced economies to change the way of working, living, travelling and socialising, it could be a game changer that transforms the real estate industry with virtual solutions becoming the norm for local and cross border transactions.