Residential Market Watch 2023Q1
New launches spurred sales volume and prices
Advanced estimates released by the government showed that the economy grew by a mere 0.1% in 2023Q1 as the global environment continues to weigh heavily on the Singapore economy. The Government has forecast that the economy will expand by 0.5% to 2.5% in 2023, down from 3.6% in 2022.
Against the backdrop of a slowing economy, developers were careful to pace their new launches. Four new projects ere launched which saw new sales jumped by 82% q-o-q, after a 68% contraction in 2022Q4. This was partly due to an increase in investment demand as more countries resumed air travels. As a result, the URA private residential price index rose by 3.3.% q-o-q in 2023Q1, a significant gain compared to the mere 0.4% q-o-q gain in the preceding quarter. Year on year, the price index has risen by 11.4%.
The price index of landed homes surged 5.9% q-o-q increase while non-landed homes registered a smaller quarterly increase of 2.6%. We attribute the stronger price gain in landed homes to its limited supply. Buyers were also willing to pay more as they saw value in landed homes.
Within the non-landed segment, prices of homes in the Rest of Central Region (RCR) saw the biggest gain of 4.4% q-o-q, followed by the prices of homes in Outside Central Region (OCR) and Core Central Region (CCR) which rose by 1.9% and 0.8% q-o-q respectively. Back in 2022Q4, prices in RCR and CCR grew by 3.1% and 0.7% from the preceding quarter. Prices in OCR contracted by 1.9% over the same period due to a low sales volume as most of the new projects have sold out.
The government was concerned with the rise in home prices ahead of economic fundamentals as well as the increase in investment demand. With interest rates still rising and the prevailing uncertainties in the global economy, it is not sustainable to have home prices rise at this pace. Hence the government introduced new cooling measures in April 2023 to stabilise the market.
Market dynamics
Due to the dearth of new launches in 2022Q4, there was much anticipation for the new projects offered in 20231Q1. The main ones were Sceneca Residence, Terra Hill and The Botany at Dairy Farm which achieved take-up rates of 60%, 35% and 48% respectively. The average price of $2,695 psf for Terra Hill was a new benchmark for the Pasir Panjang location.
Existing projects continued to sell but choices were limited as the stock of unsold units was running low. Of this pool, the best seller in 2023Q1 was Leedon Green with 55 units sold, followed by 54 units sold from Pullman Residences. In all, developers launched 1,312 new homes for sale in 2023Q1 and sold 1,256 units, 82% higher than the 690 units sold in 2022Q4. The 1,256 units comprised 541 units (43%) from projects in CCR, 257 units (20%) from those in RCR and 458 units (36%) from those in OCR.
The resale market saw a healthy sales volume of 2,622 units, marginally lower than the 2,694 resale homes sold in the previous quarter. Resale homes still have their appeal because they are relatively more affordable and bigger in size than new homes, and are immediately available for occupation. The bulk of 1,372 units (52%) were located in OCR, while 707 units (27%) and 543 units (21%) were located in RCR and CCR respectively.
Some 243 subsales took place in 2023Q1, 19% more than the subsales in the preceding quarter. The sellers could be motivated by the higher prices these units could fetch compared to what they paid two or three years ago.
In total, 4,121 homes were sold in 2023Q1, which is 15% higher than the volume in 2022Q4, but 23% below the volume in 2022Q1. While more new projects are expected to be launched for sale this year, macro-economic headwinds and the latest hikes in ABSD are likely to impede home sales volume for the rest of the year.
Based on the caveat data provided by the URA, the proportion of HDB addressees – a proxy of HDB upgraders – has declined from 34% in 2022Q1 to 26% in 2023Q1. This could be an indication that HDB upgraders were gradually being priced out since home prices have risen by some 11% over the same period.
In addition, the caveat data also showed that Singaporeans bought 72% of the homes in 2023Q1, down from 79% in 2022Q1. On the flip side, Singapore permanent residents bought homes 20% of the homes, having risen from 18% in 2022Q1. Similarly, foreigners’ share of the home sales volume rose steadily from 3% in 2022Q1 to 7% in 2023Q1. By country, the top five foreign buyers in 2023Q1 came from China, Malaysia, India, USA and Indonesia.
Like the wider market, the luxury market performed better in 2023Q1 than in 2022Q4. A total of 139 luxury homes were sold, 42% higher than the 98 luxury homes sold in 2022Q4. The properties sold in 2023Q1 comprised six bungalows in the Good Class Bungalows areas, five at Sentosa Cove, and 127 luxury apartments. The most expensive property sold in each segment was a $28 mil bungalow at Binjai Park, a $36.5 mil bungalow at Coral Island and a 6,288 sq ft apartment at Les Maisons Nassim that fetched $36 mil.
Rental market
According to URA’s statistics, there were 23,624 vacant units at the end of 2023Q1, some 9% higher than the 21,647 vacant units in 2022Q4. As a result, the vacancy rate rose by 50 bps to 6.0% from 5.5% in 2022Q4.
Though rents continued to hike in 2023Q1, signs of slowing down were beginning to show by March. Anecdotal evidence showed that there were fewer enquiries to rental listings as tenants resisted landlords’ expectations. This could be due to more private condominiums and public flats being completed over the last six months, off-setting the prevailing tight supply.
The URA rental index rose 7.2% q-o-q, easing from the 7.4% hike in 2022Q4. Year on year, the rental index has gained a total of 33.4%. Landed home rents was the key driver in 2023Q1 with a gain of 14.5% while non-landed home rents rose by 6.2%. The surge in rents for landed homes could be attributed to its limited supply as well as the influx of foreign ultra-high-net-worth individuals who were willing to pay high rent for luxury bungalows. URA’s rental data shows that the highest rental in 2023Q1 was $170,000 per month for a bungalow at Astrid Hill. For non-landed home rents, the CCR segment posted a gain of 6.4% q-o-q followed by 6.2% for RCR and 6.1% for OCR. Based on URA’s rental data, a four-bedroom luxury apartment at The Marq was rented out at $100,000 per month in February.
New completions in 2023Q1 numbered 2,965 homes, lower than the 4,423 new homes completed in 2022Q4. This brings the total residential stock to 394,062 units at end-March. The big projects completed in 2023Q1 were Avenue South Residence (988 of the 1,074 units), Kent Ridge Hill Residences (548 units), Riviere (455 units) and Mayfair Gardens (215 units).
Some 14,000 new homes are expected to be completed by end-2023. As families who have been staying in rental homes move to their new homes, more homes will be freed up to meet the needs of expatriates. This could help to cool the rental market.
Supply in the pipeline
The supply pipeline of uncompleted private homes with planning approvals stood at 44,846 units at end-March, compared to 46,041 units in 2022Q4. Of this number, 16,252 units (36%) were unsold, slightly higher than the 16,024 units at end-2022. The 16,252 unsold units comprised 6,085 units (37%) from projects that were either launched or not launched yet and 10,167 units (63%) from projects without the prerequisites for sale.
At this level, supply is still tight based on a take-up rate of 7,500-8,500 new homes per year. Hence, home prices are likely to hold up.
There was no sale of residential sites from the government land sales (GLS) programme in 2023Q1.
However, from the private supply, developers bought three residential sites and a commercial building with a view to convert the four upper floors to serviced apartments, subject to URA’s approval.
The site of Bagnall Court at Upper East Coast Road is about 700m from the future Bedok South MRT station on the Thomson East Coast Line (TEL). This is a future growth area as the government has announced its plans to build 6,000 public flats and 6,500 private housing units in the vicinity of Bayshore/ Upper East Coast Road.
The Meyer Park site also has the advantage of being situated close to an upcoming Katong Park MRT station on the TEL, about 600m from the site.
Holland Tower is a prime site situated within Holland Park Good Class Bungalow Area, and is a short drive from Holland Village. The developer Wing Tai is likely to develop a high-end project onsite.
These three sites will potentially yield around 400 new residential units when developed. The successful sale of these three sites shows that developers are very selective in buying collective sale sites. They are keen on such smaller sites because they can better manage costs and lower the risk of not being able to sellout by the deadline for ABSD payment.
Outlook
Notwithstanding the prevailing macroeconomic uncertainties in the global economy which was worsened by the turmoil in the global banking industry, Singapore’s strategic geographical location, business friendly environment and stable government continue to attract foreign investments. The private residential market also benefited from this, as seen in the increase in foreign home buyers in 2023Q1.
Purchases by foreigners and Singapore PRs has risen from 7% in 2021 to 10% in 2022 and registered 12% in 2023Q1, partly contributed by the re-opening of China in January 2023. The government was concerned that this would deprive locals who are buying their first homes for owner-occupation. Hence, in April 2023, the government raised ABSD rates for both local and foreign investors.
We expect this move to slow down residential demand going forward. Home buyers will largely comprise of first-timers who are not subject to ABSD, and their buying probably more focused on properties located in RCR and OCR, where prices are more affordable. Home prices are to rise marginally for the rest of the year.
Developers will be more selective in acquiring development sites. While GLS sites are clean and ready for development, there should still be interest in freehold sites in prime locations which developers can hold for a longer term.