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Report warns against half-truths in property market
Nomura has warned Singaporeans not to believe the hype about a pick-up in the property market.
In addressing some ‘half-truths’ about the Singapore property market, financial services group Nomura has warned the public not to believe the hype about a property pick-up in the city-state, reported CNBC.
This comes as sellers and buyers search for cues on whether the market is close to the bottom.
Data from the Urban Redevelopment Authority (URA) showed that private home prices fell 1.5 percent quarter-on-quarter in Q3 2016, its 12th consecutive quarterly decline and the biggest quarterly drop since the Global Financial Crisis in 2009.
However, the first myth about the market was that private home sales had registered strong gains, said Nomura in a note. New private home sales, excluding executive condominiums (ECs), picked up in September, jumping 49.3 percent year-on-year and almost nine percent month-on-month to 509 units.
While developer sales has hovered around 600 units per month on a rolling 12-month average since end-2014, Nomura did not expect some large sales figures for October – like The Alps Residences and Forest Woods moving a combined 607 units, which would change to the whole picture.
Nonetheless, secondary market transactions for the first eight months of 2016 rose to an average of 690 private homes per month, from 560 over the same period in 2015, and 480 in 2014.
On the second ‘half-truth’, Nomura revealed that the pick-up in demand for prime luxury properties was exaggerated.
Although the number of new private homes sold in the Core Central Region (CCR) increased to 600 in the first nine months of 2016 from 430 for the whole of last year, over a third of the said sales came from just one development, said Nomura, adding that this year’s average of 67 units per month is still historically low.
In fact, the luxury segment, or properties priced above $5 million, were averaging 114 units per quarter, which is also relatively low.
The next myth surrounding the market is that unsold inventory, particularly in the suburbs, is low.
While unsold inventory overall and in the suburbs declined to 35 and 25 months respectively from 2014’s peak of 46 and 35 months, the figure remains high compared to 2009 to 2015’s average of 30 and 22 months, said the bank.
“We believe the unsold inventory should be measured against the prevailing demand, rather than in isolation.”
Another half-truth is that private home vacancies have finally hit its peak, it said.
The 30,000 new private units completed from 2015 through to H1 2016 brought the vacancy rate up to above 10 percent in Q2, or its highest level since last year. However, Nomura noted that another 30,000 units are set to enter the market in H2 2016 and into 2017. This translates to about 20,000 units per year.
“To put things in context, the pace of private housing completions between 2000 and 2013 was about 9,200 units a year,” it noted.
Lastly, it was a myth to expect the prime luxury segment to reach a pricing bottom.
Nomura revealed that unsold inventory within the CCR was equivalent to more than 100 months of demand, with 76 percent more completions set for the next 18 months than during the previous 18 months.
“We are concerned that there could be more downside to rents and capital values in the prime luxury segment, notwithstanding the fact that rents and capital values have already corrected 50 percent and 27.6 percent respectively from their first quarter of 2008 peaks,” added Nomura.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
