Singapore - A NEW JLL report is extolling the virtues of buying a prime residential property in Singapore now, given how "affordable" they have become compared to other global cities in the last four years. This is in spite of the loan curbs and tax burdens in place.
The real estate consultancy estimates that the average luxury prime residential price of S$1,991 per square foot (psf) in the fourth quarter of 2015 is about 20 per cent off the peak in 2011.
This is the biggest correction across domestic asset classes in the last four years. Office, retail and industrial property prices have fallen 4-6 per cent; suburban residential prices are down 12 per cent.
By various measures, Singapore ranks among the top global cities with London, New York, Paris, Tokyo and Hong Kong. Yet, prime residential prices here are significantly lower than other cities after the correction, the report finds.
This is because while its prices have fallen sharply, other cities' prices have continued to climb in the last four years.
Prime home prices in Hong Kong are now 165 per cent higher than in Singapore. Prime home prices in New York and London were 10-30 per cent higher than Singapore in 2010, but are 80-90 per cent higher in 2015, because they rose 20-25 per cent in the last five years, while prices in Singapore fell 20 per cent.
Back in 2010, the average home price to income ratio of 7.3 times in Singapore was on par with other cities except for Hong Kong, a traditional outlier for home prices.
But by 2015, Singapore's ratio had fallen to just 5.6 times, versus 8-9 times for other global cities.
In the current climate, sentiment in Singapore's prime residential market has been very weak, with resale transactions falling to about 800 each year in 2014-2015, similar to recession levels in 1998, 2001 and 2008.
The Monetary Authority of Singapore, in its November 2015 Financial Stability Review, had assessed that Singapore residential prices could have been 17 per cent higher if the government had not introduced property cooling measures (such as lower loan-to-value limits, additional stamp duties and loan caps) since 2010.
The report's author, Regina Lim, JLL's national director, advisory & research, capital markets, says: "Despite the increase in buying and selling stamp duties, the cost of property ownership (including buying, holding and selling) in Singapore of 19 per cent is comparable to that of other global cities which range from 14 to 26 per cent."
That said, the average rental yield for Singapore prime residential properties now looks low at 1.8 per cent at the moment, close to the mortgage rate of 1.6-2 per cent.
Rentals have declined in prime districts after a 4.7 per cent compounded average growth in supply in 2010-2013. Many of these were en bloc redevelopment projects begun in 2006-2009, but these have fallen out of favour with developers since 2011.
Ms Lim expects rents to rise after 2016 as the supply in prime districts has become increasingly limited.
Prime residential rents are now languishing at 40 per cent below 2008 levels, and just 8 per cent above 2000 levels.
In comparison, the median household income has risen 100 per cent since 2000. Rents have evidently not kept pace.
Ms Lim says: "We believe there will be more opportunities to buy residential units in bulk in 2016 . . . For prime residential units that were completed in 2012, several developers have transferred unsold units to 100 per cent Singapore-owned entities or sold them in bulk at lower prices in 2014-2015. This further suppresses prices in a challenging market."
She believes developers could seek to sell around 1,000 units in bulk in 2016-2018 if the market does not improve.
So far, such distressed sales have mostly been picked up by private funds.
This article was first published on March 9, 2016.
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