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The price war has begun
8 November 2013, TODAY |
The Urban Redevelopment Authority (URA) released the data for the third quarter 2013 and the Private Property Index (PPI) for residential properties showed an increase of 0.4 per cent over the previous quarter. Growth, despite the harsh measures around Total Debt Servicing Ratio (TDSR) meted out at the end of June.
The key reason for the PPI’s growth was the 2.2 per cent increase in the price index of non-landed properties in the mass market, Outside Central Region (OCR). Prices of non-landed properties in the Core Central Region (CCR) fell 0.3 per cent while those in the Rest of Central Region (RCR) fell 0.9 per cent.
Getting into the details, we see that the 0.9 per cent price decline in the RCR was purely due to a 1.9 per cent drop in the prices of ‘Uncompleted’ homes. Prices of ‘Completed’ homes in the RCR are playing catch-up with new launch prices and they managed a 0.1 per cent increase.
The drop in RCR’s price index for uncompleted homes should not come as a surprise because at the end of September, two attractively priced new launches in the RCR made the headlines with their strong pace of sales.
According to developers’ filings with URA in September 2013, 264 units at Thomson Three were sold with a median price of $1,362 psf while 433 units were sold at Sky Vue with a median price of $1,401 psf. In comparison, the average price of the units sold at Sky Habitat since the beginning of 2013 exceeded $1,500 psf.
A small price competition had erupted between these two large projects, and the impact is obvious: the RCR price index dipped.
Rules for mortgages of resale HDB flats were further tightened in August, leading to a decline of 0.9 per cent in the HDB resale price index. This is the first decline since the first quarter of 2009 when the Lehman crisis hit the global stock markets hardest.
With the lowered Mortgage Servicing Ratio (MSR) and shorter loan tenures, young families and upgraders had to moderate their ambitions for bigger or better located flats. The impact on median resale prices and median Cash-over-Valuation (CoV) is illustrated through the examples in Table 1.
Table 1: A majority of median resale prices and CoVs fell across the various towns and flat-types between 2Q 2013 and 3Q 2013.
Source: HDB, Century 21 Singapore
We are halfway through the final quarter of 2013. As Thomson Three and Sky Vue continue to sell at attractive prices, a new launch in the OCR, The Inflora, achieved remarkably strong sales despite the restrictive mortgage rules.
To ensure a high volume of sales, average prices of shoebox units transacted at The Inflora during its launch in late October was below $1,000 psf, 20 per cent cheaper than the average prices of shoebox units in transacted at D’Nest in 2013 and 10 per cent cheaper than shoebox units sold at Hedges Park in 2011.
Other projects that sold rather briskly were priced with a reasonable margin below previous launches in the same neighbourhood: The Venue Residences, Nine Residences, etc.
Projects launched without a clear margin of discount to recent new sales in the vicinity simply did not fare as well.
The competition between developers will be hotter over the next few weeks. DUO Residences, Marina One Residences and Alex Residences are poised for strong sales by pricing their small units with average quoting prices that are at least 10 per cent below previous new launches in their respective neighbourhoods.
The price wars have begun, triggered by new four letter words such as ABSD and TDSR. The first confirmation of price competition is revealed within the third quarter of 2013 RCR index. The HDB resale index has fallen 0.9 per cent on the back of lower resale prices and lower CoVs due to the squeeze on borrowings.
The sentiment of genuine upgraders and investors who currently own HDB units are already affected by these measures. They would require strong encouragement to upgrade or to invest. HDB sellers and private residential developers can provide such encouragement mainly by discounting their prices.
As competition intensifies between developers and property sellers, and with no let up in the tight policy measures, the price indices will decrease, almost certainly for fourth quarter of 2013 (as evidenced by the sales at The Inflora, Nine Residences, etc), and perhaps over the next two to three quarters too.
A gradual drop in the overall price indices is the result desired by the authorities. Perhaps as the property sector cools down, the authorities can move on to checking on frothy small cap stocks?