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URA private home index down 1%; HDB resale index retreats 1.4%

http://www.businesstimes.com.sg/premium/top-stories/q2-home-prices-slide-further-slower-clip-20140726

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PRICES of private homes and HDB resale flats have continued to soften in the second quarter amid a pick-up in transaction volumes.

But even though the quarter-on-quarter dips are smaller than in Q1, the prognosis is hardly cheery – besides mounting supply, demand is clipped by the total debt servicing ratio (TDSR) framework, and in the case of HDB flats, the mortgage servicing ratio as well.

The Urban Redevelopment Authority’s private home price index fell one per cent in Q2, after easing 1.3 per cent in Q1. This is the third straight quarterly drop. Total transactions – new sales, resales and subsales combined – rose 46.4 per cent to 4,118 units from 2,813 in Q1. Year on year, the Q2 index was down 2.8 per cent.

Meanwhile, HDB’s resale flat price index eased 1.4 per cent, compared with 1.6 per cent in Q1. This is the fourth consecutive drop in the index. The 4,389 resale applications registered in Q2 was up 16.1 per cent from a quarter earlier. The Q2 index reflects a year-on-year drop of 5.3 per cent.

Property consultants expect the full-year drop for the HDB index to be 4-8 per cent and for the the URA index, 5-8 per cent.

The trend is expected to continue next year. Eugene Lim, key executive officer of ERA Realty, said: “MAS (Monetary Authority of Singapore) has maintained their stand that TDSR will remain for the long term and that it is still early days to tweak any of the cooling measures. Therefore, we can expect the moderation in property prices to continue into 2015. Volumes are likely to be flat.

“Economically, we are doing well. The employment situation is good. Logically, the property market should be moving upwards in tandem with the economy. However, we are seeing moderate price declines due to the increasing supply as well as policy measures which are designed to put a check on property prices.”

JLL national director Ong Teck Hui said: “What I will be looking out for is whether the market has softened to a stable level, characterised by mild or gradual price decline of about one-odd per cent per quarter, and steady transaction volume – or whether the converse will happen: volumes could decline significantly further and leading to greater magnitude of quarterly price declines.”

URA’s Q2 data out yesterday shows that the price decline for landed homes has gathered pace – 1.7 per cent compared with 0.7 per cent in Q1.

The price decline for non-landed private homes, however, moderated to 0.8 per cent, from 1.3 per cent. Prices in suburban locations, or the Outside Central Region, retreated 0.9 per cent, faster than Q1’s 0.1 per cent dip.

In the city-fringe, or Rest of Central Region, prices edged down 0.4 per cent, compared with a 3.3 per cent drop in Q1.

Core Central Region (CCR) fell 1.5 per cent, compared with Q1’s 1.1 per cent drop. CCR covers the Downtown Core planning area, Sentosa and the traditional districts 9, 10 and 11.

Chia Siew Chuin, director at Colliers International, noted that “the CCR has been hit by a prolonged drought in foreign buying, high price tags and some potential buyers facing difficulty obtaining loans for higher-value properties due to TDSR”.

She also said that developers of high-end properties affected by Qualifying Certificate rules are facing pressure to finish selling their projects within two years of obtaining Temporary Occupation Permit (TOP). This has made them more inclined to trim prices to move units.

Ms Chia forecasts a 10-15 per cent price drop for luxury and super-luxury condos for the year.

Meanwhile, URA’s rental index for private homes dipped 0.6 per cent after shedding 0.7 per cent in Q1.

In the first half, 9,016 private homes were completed, that is, received TOP. With 8,066 more slated for completion in H2, taking full-year completions to a record 17,082, rents are expected to come under greater pressure.

The vacancy rate of private homes has risen to 7.1 per cent at end-Q2 from 6.6 per cent at end-Q1.

In the public housing market, substantial supply is also expected to put a dampener on resale flats. Based on HDB data, launches of Build-To-Order (BTO) flats are expected to total about 22,400 units this year, following 2013’s 25,139 and 2012’s 27,084.

On top of that, the Sale of Balance Flats (SBF) will amount to some 6,400 units this year. In 2013 and 2012, the figures were 7,074 and 7,153 respectively. The large numbers of BTO and SBF flats will reduce appetite for resale flats, say market watchers.

Adding further pressure on HDB resale flat prices, said PropNex CEO Mohamed Ismail, is an “imminent flood in supply of HDB resale homes from existing HDB flat owners collecting the keys to new BTO flats and private properties”.

HDB resale transaction volumes, however, may improve slightly due to lower asking prices. Mr Ismail expects around 17,000 resale HDB flat transactions for this year. SLP International’s Nicholas Mak forecast 15,500-16,800 units. Both their figures would be the lowest since 1997. Last year, 18,100 HDB flats changed hands in the resale market.

Is it time to review cooling measures?

According to an article in BT this month, property developers have collectively paid up to $55.1 million in extension fees for unsold units in their private condo projects since 2012. They could potentially fork out another $80.7 million to extend the sales period for another year if they do not sell their inventory by year-end.

24 condo projects, consisting primarily high-end ones, are still not fully sold two years after receiving their temporary occupation permits (TOPs) between 2010 and 2012, the study showed.

“Foreign developers” under the Residential Property Act (RPA) –  developers with non-Singaporean shareholders or directors — need to obtain QCs to buy private land for new projects. Thus the QC rules apply to all listed developers. Few developers exempted from the rules include privately owned Far East Organization and Hoi Hup.

As QCs allow developers up to five years to finish building a project and two more years to sell all the units, the heat is on developers to clear their stock by the deadline.

To extend the sales period, developers pay 8 per cent of the land purchase price for the first year of extension, 16 per cent for the second year and 24 per cent from the third year onwards. The charges are pro-rated based on unsold units over the total units in the project.

Such fees drove luxury residential player SC Global to delist from the Singapore Exchange last year after sales slowed significantly due to the government’s property cooling measures.

Analysts warn that more extension charges will kick in. The charges paid up so far are just the tip of the iceberg as projects built from land acquired during the 2006-2007 en bloc fever have just crossed a seven-year mark, they say.

“More developers are caught between a rock and a hard place” as they have to decide whether to pay the extension charges or cut prices to move the units, said SLP International executive director Nicholas Mak.

If they pay for extension charges, there is also the question of whether they can recover these costs later on, he said. This is why some developers of luxury projects are resorting to selling the units in bulk to mega investors.

OrangeTee’s study of the 24 projects excluded three projects whose land costs could not be determined. It tracked sales of projects through caveats lodged, which it conceded could be lower than actual sales.

At the end of the first quarter of this year, there were 10,295 unsold units in the Core Central Region (CCR), 8,089 in the Rest of Central Region (RCR) and 12,433 in the Outside Central Region (OCR).

Based on URA caveats, there are 71 unsold units in Wheelock Properties’ Scotts Square that TOP-ed in 2011 and 16 unsold units in Wing Tai’s Helios Residences, which also TOP-ed in the same year.

“As unsold inventory builds up, there will likely be more bargains in the market if developers want to avoid paying penalties to extend the sales period, especially high-end developers who have already paid premium prices for their lands,” Ms Li said.

The study excluded the fees that developers need to pay to extend the completion of projects beyond five years, as they can typically extend without paying the charges “based on technicalities”.

Even in a more optimistic scenario where developers manage to sell 20 per cent of the remaining units for the rest of this year, further extension charges to be paid by developers by end-2014 will amount to around $68.3 million.

Some market watchers noted that the QC rules should mark a distinction between larger and smaller projects, given that it takes a longer time to move all the units in large projects in a difficult market as the current one.

Century21 chief executive officer Ku Swee Yong said that demand for high-end projects had been hit hardest by higher additional buyers’ stamp duty (ABSD) since January 2013 and a borrowing cap under the total debt servicing ratio (TDSR) since June last year.

Even if a developer decides to set up an investment company to buy the units and rent them out, the company could be hit by a 15 per cent ABSD and is restricted by a loan-to-value limit of 20 per cent.

While there is good reason for having QC rules to regulate foreign participation in the housing market, these rules were in place before the ABSD and TDSR. “It is about time we review these measures,” Mr Ku said.

http://www.btinvest.com.sg/dailyfree/unsold-homes-big-drag-developers-coffers-20140607/