Diverging price trends a challenge for policymakers

Business Times: Tue, Apr 03

(SINGAPORE) The divergence in performance between mass-market condos - defined as those in Outside Central Region (OCR) - and others elsewhere has come into sharp focus. The Urban Redevelopment Authority's (URA) Q1 2012 flash estimates saw its benchmark private home price index dip 0.1 per cent quarter on quarter - the first decline since Q2 2009 when private residential property prices bottomed out after the global financial crisis. However, the subindex for non-landed private homes in OCR - where mass-market condos are located - continued to surge 1.2 per cent quarter on quarter in the first quarter, double the 0.6 per cent quarter-on-quarter gain in Q4 2011. On the other hand, price indices for non-landed homes in Core Central Region (CCR) and Rest of Central Region (RCR) changed direction and slipped by 0.9 per cent and 0.7 per cent respectively in Q1 2012. This contrasts with increases of 0.5 per cent and 0.1 per cent respectively in Q4 2011. CCR includes the traditional prime districts 9, 10 and 11, as well as the financial district and Sentosa Cove. Most property consultants attribute the increase in OCR prices to relatively high per-square-foot prices achieved for several popular mass-market condo projects in Q1 - including Watertown in Punggol and Hillier in the Hillview area. Both are part of mixed developments, in close proximity to MRT stations and in the case of Watertown, also fronting My Waterway@ Punggol. Many of Q1's top-selling projects feature small units. In contrast, demand for homes in CCR and RCR - which depend more on investment demand from Singaporeans and foreigners - has come off significantly especially following the introduction of the additional buyer's stamp duty (ABSD) effective Dec 8, 2011. The steepest ABSD rate of 10 per cent applies to foreigners buying any residential property in Singapore. 'Volumes have also come down significantly in the secondary market, especially in the CCR and RCR,' notes DTZ Southeast Asia chief operating officer Ong Choon Fah. Industry players say that the URA's price indices, which are based on caveats evidence, may also be obfuscated these days with the various tiers of incentives given by developers - such as buyer's stamp duty absorption, furniture vouchers, early bird and other discounts. Some of these are given upfront and hence reflected in the caveated prices, while others are given later and hence not captured in the caveats. Looking ahead, most property consultants expect the divergence to continue. CBRE executive director Li Hiaw Ho reckons prices in CCR and RCR to ease marginally while those in OCR will remain firm, aided by healthy take-up of mass-market projects. However, Credo Real Estate executive director Ong Teck Hui says: 'The price divergence between OCR and CCR/RCR cannot continue indefinitely'. 'A stage will come when prices in CCR and RCR correct sufficiently for buyers to realise that properties in these submarkets are relatively more attractive, luring some buyers, especially investors, away from OCR,' he adds. DTZ's Mrs Ong highlights that the various government policies to ensure adequate supply have started to take effect. As well, recent policies such as the increase in household income ceilings for buyers of new build-to-order Housing & Development Board flats and new executive condo projects (a public-private housing hybrid) and higher allocation of units to second timer buyers are expected to siphon off some demand from mass-market condos. Jones Lang LaSalle's SE Asia research head Chua Yang Liang reckons that the divergent trend is likely to continue this quarter unless there is further government intervention. 'The difficulty for policymakers today is to introduce a simple and fair measure that does not penalise one submarket over another. It is very challenging when you have on the one hand, prices in the private high-end segment correcting at 0.9 per cent while the mass market continues to rise at 1.2 per cent. 'In my opinion, the state could discourage excessive purchases of property for investment by raising the eventual holding costs, such as introducing a temporary increase in the 10 per cent residential property tax rate for investment properties to as high as 15 per cent,' he suggests. Knight Frank chairman Tan Tiong Cheng says: 'To say the OCR price index is up is misleading, in that more and more downsized units have been coming out in the OCR in the past year. When will the demand for such small units be over? The fact is the lump sum is attractive and young people seem to accept it. It could be a case that they feel that by locking in something they can afford now, should property prices go up further, they will be less impacted.' Source: Business Times