Landed property fever?

luxuryasiahome on November 19, 2010

Judging from present trends, the landed segment appears to be headed for new highs

Six weeks ago, this paper featured my article, Quest for landed property picks up. In it, I touched on the growing scarcity of landed properties in Singapore and its impact on demand and prices.

We observed how landed property prices outperformed non-landed prices during this market upturn. Landed home prices rose 43.2 per cent, compared to 37 per cent for non-landed ones between the middle of last year and the middle of this year, according to the Urban Redevelopment Authority’s (URA) residential property price index. Since that article was published, several events have occurred that make it worthwhile to pursue the landed story further.

Landed homes outperform by an even wider margin

When the URA released the third-quarter real estate statistics on Oct 22, all eyes were on the residential price index to see how the market might have been affected by the Aug 30 cooling measures.

As expected, overall prices of private residential properties increased at a slower pace of 2.9 per cent in 3Q2010, compared to 5.3 per cent in the previous quarter.

Closer scrutiny revealed a divergence in the price increases between non-landed and landed homes.

While the rate of price increase for non-landed homes slowed to 1.6 per cent in 3Q2010 from 5 per cent in 2Q2010, that for landed homes bucked the trend by picking up. Landed prices rose 6.2 per cent in 2Q2010 but surged 7.7 per cent in the third quarter. Five quarters of a rising market have pushed landed prices up by 54 per cent but only 39 per cent for non-landed.

The table above compares price changes between landed and non-landed homes, as well as between the different types of landed homes and in different regions from 2Q2009 to 3Q2010.

While all types of landed property have surpassed non-landed in price performance, it is the detached category that impressed with an overall price increase of 58.3 per cent.

Even more surprising is the 63.9-per-cent price increase for detached houses in the north-east region. Although non-landed prices lagged with a 39.1-per-cent increase for the five quarters, those in the rest of central region enjoyed a creditable increase of 49.8 per cent.

On Oct 28, the URA conducted an auction to sell 14 land parcels for landed property development in Sembawang Greenvale Phase 3. These parcels would generate 115 landed units, the majority of which will be terrace houses.

What surprised many was the bullish bidding at the auction.

At the close of the auction, the URA raked in $134.55 million for a total site area of 246,327 sq ft, working out to $546 psf on average.

By contrast, phases 1 and 2 were sold in Oct 2007 and April 2008 at significantly lower average land prices of $285 psf and $223 psf, respectively. What drove demand for these 99-year leasehold land parcels?

Landed Sandwich Class?

For some upgraders to landed property, the price gap between their existing homes and freehold landed homes may be too much of a stretch financially. The more affordable 99-year leasehold landed home bridges the gap, as prices for such properties are about 20 to 25 per cent lower than freehold ones.

Over the years, a critical mass of 99-year landed homes has grown into an established market. In the first three quarters of this year, 17 per cent of all landed property transactions were for 99-year leasehold homes.

Compared to freehold property, the values of 99-year landed homes appreciate slower but their affordability continues to attract buyers.

New benchmarks raise price expectations

Under the present market conditions, 99-year terrace and semi-detached houses on the secondary market in suburban locations generally command $600 to $800 psf, while the $1,000 psf threshold is crossed mainly in the prime districts.

For example, a 3,000-sq-ft semi-detached house in Kingsville (102 years lease from 1996) sold for $3.9 million, or $1,300 psf, while a 3,423-sq-ft terrace house at The Greenwood (103 years from 2008) sold for $3.44 million, or $1,005 psf.

However, Sembawang Greenvale, an outlying location in the north, has also seen new 99-year leasehold houses selling for more than $1,000 psf.

A 1,668-sq-ft terrace house (99 years from 2008) transacted at close to $1.8 million, or $1,070 psf , while another with 1,808 sq ft fetched $1.82 million, or $1,006 psf. Numerous other similar properties in that area have commanded above $900 psf.

Such bullish pricing has contributed to enthusiastic bidding for the Sembawang Greenvale land parcels and the market can expect new units to be just as optimistically priced when they are launched.

At land prices of between $443psf to $640psf in Sembawang Greenvale, the target sale price for a typical 99-year terrace house would be around $2 million, or $1,200 psf, which would be a new benchmark for this market segment.

Judging from present trends, it appears that the landed segment of the property market is headed for new highs.

By Ong TeckHui, executive director, Research and Consultancy at Credo Real Estate.