Finding the sweet spot

(2012-03-19 04:35:01) 下一個

Despite uncertainty in the residential sector, developers and buyers can still gain from mid-tier and high-end projects.

Tue, Mar 13, 2012
The Business Times

By Alan Cheong

WITH the stock of unlaunched high-end condominiums stacking up, prospects for these properties appear worrisome. It hasn't helped that a 10 per cent additional buyer's stamp duty (ABSD) has been slapped on foreign buyers, who traditionally favour this segment.

Will developers submit to market forces or can they simply batten down the hatches and wait out the storm?

It has been a turbulent 2011 for the private residential market. The government imposed two rounds of stamp duty actions on property transactions even as a growing number of analysts were of the view that prices would be affected by increasing supply.

Even before the ABSD was imposed in December last year, there were some 6,000 high-end units alone with permission to launch but which had yet to do so.

And in a surprising development, attention shifted to the mass market segment. The chart shows that in 2011, mass-market properties dominated sales. The question for developers now is what strategy to adopt for their mid-tier and high-end projects.

The simple answer might be to complete the unsold inventory and rent out the units to the increasing number of foreigners here. However, despite the buoyant rental market, anecdotal feedback from developers indicates that there could be a mismatch between tenants' budgets and the stock available (that is, mostly large units). So there are no straightforward solutions.

With the residential sector in a time of flux, we offer some pointers that could help both developers and buyers find the sweet spot in the current market. Our analysis focuses on unit size and absolute quantum paid, rather than price per square foot (psf) since the latter is a by-product of the first two factors.

The following are some salient facts about buyers' preferences:

Buyers' preference by size

Since 2007, there has been rapid growth in transactions of units under 800 sq ft. In 2011, this segment accounted for 24 per cent of all non-landed private homes sold (excluding executive condos or ECs). In 2007, it was just 8 per cent.

Buyers' preference by price

In terms of absolute quantums, the largest segment in 2011 was in the range of $600,000 to $1 million. Next was the $1-1.5 million segment. Together, these two segments made up two-thirds of non-landed properties sold last year (excluding ECs).

Foreign buyers' make-up

For both mid-tier and high-end properties, Chinese nationals, Malaysians and Indonesians have been consistently present in the market. One interesting observation is that buyers from India are not active in the high-end segment.

Foreign buyers' purchase quantums

For high-end properties (represented by the Core Central Region or CCR), Chinese nationals have been buying units mostly ranging from $2-3 million. This is similar to the price range for Indonesian buyers.

For mid-tier properties (represented by Rest of Central Region or RCR), Chinese buyers preferred units priced between $500,000 and $1 million, while the Indonesians mostly bought properties in the $1-1.5 million bracket.


Total leasing transactions for private residential properties in 2011 hit a record 45,062, which was 8.4 per cent higher than the previous record in 2010 of 41,573.

Median rentals have also surpassed the previous peak in 2008. As more so-called shoebox apartments come on the market and are leased, rental rates on a per sq ft basis should be ratcheted up. With these five statistics, we can start to analyse what developers and buyers should look for to enhance the development saleability and liquidity of their investment. Given that real estate is a relatively illiquid investment, end-buyers purchasing for occupation or investment must consider the liquidity factor.

Looking at transactions by size, demand has been growing fastest for units under 800 sq ft and that goes for all segments, from mass market to high-end.

In part, this trend has been spurred by the penchant to own real estate even by those with limited financial resources.

A small unit makes the absolute quantums more manageable. Despite the higher prices on a psf basis, many such units cost less than $1 million. A few years back, they would have been deemed speculative investments because the rental market for such small apartments was untested.

However, given the weaker economic climate, the profile of expatriates coming to Singapore is changing. The high-budget tenant is giving way to one who is likely to be single, with a more constrained housing budget, and an employment contract that is likely to be localised within two or three years.

Therefore, these newer expatriates may not mind smaller apartments. So it appears that the speculators who took a bet on the shoebox apartment concept have won big.

Foreign buyers in search of mid-tier units have made districts 15 (Katong, Joo Chiat and Amber Road) and 21 (Upper Bukit Timah, Clementi, Ulu Pandan) their top two preferred districts in the past two years.

For high-end residential, over the same period, the top three districts were, not surprisingly, 9, 10 and 11.

But developers and buyers should go beyond these broad trends to find out the preference of different nationalities within each tier of the market.

For mid-tier non-landed properties (as proxied by the Rest of Central Region), the mainland Chinese - who make up the biggest group of foreign buyers in this segment with a 26 per cent share - have a preference for units priced between $500,000 and $1 million.

Indonesians, the third largest pool of foreign buyers in this tier, are prepared to spend more - from $1 million to $1.5 million.

For high-end properties, Chinese buyers mostly prefer to spend $2-3 million on non-landed properties, similar to the Indonesians. But, in these prime districts, Indonesian buyers outnumber the Chinese. The former make up 28 per cent of foreign buyers while the Chinese rank second, with a 20 per cent share.

Investors who keep a property to lease out should be happy to note that the rental market is extremely healthy. But they must note the changing profile of expatriates here. With less generous employment terms going forward, such tenants may prefer to rent either HDB flats or smaller private apartments.

Singles might look for units under 900 sq ft while families are likely to opt for units ranging from 900-1,200 sq ft.

The writer is director of research and consultancy at Savills Singapore.

[ 打印 ]
閱讀 ()評論 (0)