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More Changes For Private Condo Developers. Here’s What It Means For Homebuyers

Well, it will be an understatement if the new rules by the Urban Redevelopment Authority (URA) are not described as shocking. So much so that property stocks are on the downward spiral which could be the worst this year. Particularly, The Strait Times reports that URA moved to cap the maximum number of new units allowed in new flats and condominiums that are built for housing purposes.

Interestingly, a single project will now have fewer units per every flat or condo built. Further, the authorities directed that developers design their new units to be larger than the current size. Currently, developers are allowed to build condos with 70 sq m of floor size. However, the new measurements that take effect beginning first month of 2019 are 85 m2 of floor size.

Also, the new guidelines affect the balcony area of new buildings, Today reports. Interestingly, the new guidelines limit the size of balconies. The URA deems the existing balconies to be outsized. Further, the authority tweaked a previous law to encourage private outdoor spaces in private landed residential developments.

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“Under the scheme, a developer can get a bonus 10 per cent of gross floor area (GFA) above the maximum permitted for development to provide such private outdoor spaces,” Today adds.

As per the new guidelines, The Strait Times observes that developers will have 18% fewer units compared to previous gross floor area (GFA) estimates. This is the first time in a long while the URA is implementing such rules. Most certainly, the new requirements will hit property buyers, both negatively and positively.

 

Larger units steeper prices

Basically, the increased GFA per unit implies larger spaces for houses. However, the decreased number of units and the increased convenience will come at a steep price. As a result, homebuyers might hold back plans to purchase houses until the heat cools down.

In a research note, analysts affiliated to DBS Bank observe that this will put downward pressure on developer stocks for a while. “Homebuyers are likely to hold back purchases to 2019 if they can, as most are likely to adopt a wait-and-see attitude in order to ascertain the impact on developers’ bids for upcoming land sites post new measures,” the research note reads in part.

Interestingly, extensive sector research indicates that most homeowners prefer smaller units to large GFA. The most important factor that they observe is the price of the units. Therefore, the new rules will definitely throw many potential homeowners off-balance.

However, OrangeTee Research notes that the most affected cohort is the millennials and retirees. This is a group of people that prefer smaller unit sizes, which are much affordable. Therefore, it is possible that the cohorts are going to hold back on new purchases, an assessment similar to that of DBS Bank’s analysts.

 

Rebounding condo purchases

In another research note, property broker OrangeTee Research indicates that the month of September saw rebounded sales of condos. This represents a jump compared to August which saw fewer units sold due to “cooling measures” by the URA.

Based on the trend, OrangeTee had estimated further firming in sales numbers in the coming months. Particularly, the firm put forecast figures at between 8,000 and 9,000 for the coming months. The research firm attributes the higher sales in properties last month to more projects hitting the ground during the month.

“Another factor for the jump this month, which did not come as a surprise to most analysts, was the timing of the annual Hungry Ghost festival as well as a return to normalcy among buyers after the cooling measures were announced,” Today quotes Ms Christine Sun, head of research and consultancy at OrangeTee. However, the new guidelines are going to turn the estimates on their heads.

 

Quality of the living environment and convenience

As much as the home prices will hike, it is also fair to note that the new guidelines mean improved quality of living for homeowners. Unpalatable as the prices will be, there will be more space for convenience.

Included in the guidelines is the cap on private outdoor spaces. As a result, developers will have more space to install additional facilities that include more communal spaces. Such facilities will include reading areas, gyms and even more function rooms within the residential areas.

In another research, OrangeTee found out that property buyers are willing to part with higher premiums for properties that offer much more convenience. “They want a place to call home, but so much the better if home is part of a larger development where they can shop, run errands and seamlessly connect to the MRT as well,” The Business Times quotes the OrangeTee study.

However, the consultancy notes that such properties that offer that much convenience are in very short supply. Expensive as the properties may be, the high demand for such convenience is likely to motivate developers to embark on such projects. Already, there are upcoming projects that OrangeTee & Tie say are already oversubscribed.

The study also establishes that there is increasing appetite for luxury condos. Guocoland’s Wallich Residence is one example of such high-end developments. According to the study, such properties offer unparalleled convenience with amenities not accessible anywhere else. Also, there is a huge scarcity of such properties.

 

The bottom-line

Therefore, it comes as no surprise in the URA trying to afford more convenience to home owners in the city-state. However, like aforementioned, this will cost prospective homeowners more.

Also, various analysts agree that there will be reduced bids for lands by developers. The new guidelines essentially reduce the profitability of a single flat, and this dampens the developer appetite for new projects.

DBS Bank researchers also note that the guidelines will reduce supply of new units, a fact that will further push home prices through the roof. Therefore, it is definitely going to be tough on the prospective homeowners, especially the millennials and retirees.

However, URA believes that once the frenzy settles, it will be a win-win situation for both ends of the market.

(By Neha Gupta)

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