The gap in median prices between the Core Central Region (CCR) and Rest of Central Region (RCR) reached a high of S$610 psf in Q4 2011, but this gap has fallen to S$461 psf in the second quarter this year.
Similarly, between median prices in the city and the Outside Central Region (OCR), the price gap has fallen from a high of S$870 psf to S$712 psf over the same period.
The profile of buyers offers one plausible explanation. Historically, there is a high correlation between the percentage of non-Singaporean buyers and the price gaps between CCR vs. RCR/OCR. In other words, the higher the percentage of non-Singaporean buyers, the higher the gap is. Since 2007, non-Singaporean buyers make up on average about 47 per cent of yearly transactions in CCR, 34 per cent in RCR and 31 per cent in OCR. At the peak of the gap in Q42011, non-Singaporeans represented 61 per cent of the total secondary transactions for non-landed properties in CCR compared to 35 per cent in Q1 2014.
Will the spreads further narrow? The answer could have important implications on property investors. If investors believe in the scenario of shrinking gap, they would do well divesting their CCR properties and investing into RCR/OCR (ignoring impact of taxes/duties as this differs for different scenarios). The converse is true if investors believe the gap will widen.
During the last Global Financial Crisis in 2007-2009, the price gap between CCR vs RCR fell from a peak of S$643 psf in Q42007 to S$367 psf in Q12009. As property prices continue to fall, we believe this gap will continue to shrink by another S$50-$100 psf.