Launch of new private homes could remain healthy in 3rd Quarter
The launch of new private homes picked up significantly in 2Q18 with 2,437 units placed on the market by developers, 164.6% higher than in 1Q18 and 21.2% higher y-o-y, said JLL. The leading real estate services company noted that rising prices and a more buoyant market led developers to increase the launches during the second quarter.
“Launch figures for 3Q18 could remain healthy as Riverfront Residences, Park Colonial and Stirling Residences have initiated their launches in July and other projects are also gearing up for launch including Daintree Residences and The Tre Ver,” said Mr Ong Teck Hui, JLL’s National Director of Research & Consultancy
Developers sold 2,366 private residential units in 2Q18, a 49.7% increase from 1Q18 but 23.1% less than the same period last year.
“Nevertheless, it reflects healthy demand which is supply led,” said Mr Ong. Adding: “More units could have been sold if there had been more launches during the quarter.”
The tally for new private homes sold in 1H18 is 3,947 units, while the full year estimate is 8,000 to 9,000 units, which is roughly 15% to 25% lower than in 2017.
JLL noted that sales of private homes in the secondary market were robust, registering 4,820 units in 2Q18 which is a 28.6% increase from 1Q18 and 25.9% higher y-o-y. It is the highest quarterly secondary market sales volume since 2Q11 when 5,348 units were sold.
As buying opportunities in the primary market were not picking up fast enough, many buyers resorted to the secondary market, pushing up its transaction volume, said JLL. Sales volume in the secondary market could ease, due to a mismatch in price expectations between sellers and buyers, as the latter becomes more hesitant after the recent cooling measures, the real estate services company added.
Strong price momentum in 2Q18
The URA private residential property price index rose 3.4% in 2Q18, unchanged from the earlier flash estimate, indicative of an even momentum in the price increase. The price index for non-landed homes in Core Central Region (CCR) rose 0.9%, lower than the 1.4% recorded during the flash estimate and significantly less than the 5.5% increase in 1Q18.
“This could be indicative of some price resistance as CCR prices surged strongly in 1Q18. For example, the median prices of new private homes sales in CCR jumped 18.1% during that quarter, which could constrain subsequent increases as buyers adjust to much higher pricing levels,” said Mr Ong.
The non-landed price index for Rest of the Central Region (RCR) rose 5.6% in 2Q18, quite similar to the flash estimate of 5.7%. Price increases in RCR seem to be catching up after a gentle rise of 1.2% in 1Q18. The non-landed price index for Outside Central Region (OCR) registered a 3.0% increase, a touch higher than the 2.9% flash estimate and slower than the 5.6% increase in 1Q18.
In the landed segment, an increase of 4.1% in its price index was recorded, higher than the 3.8% during flash estimate and the 1.9% rise in 1Q18. Demand for landed homes has picked up strongly since the residential market turned around in mid-2017. The number of landed homes sold in the year from mid-2017 to mid-2018 rose by 59% compared to the preceding one year, based on URA Realis data.
Price increases of new private homes are expected to moderate in the coming quarters due to the effect of the cooling measures imposed earlier in July.
The vacancy rate fell for the third consecutive quarter on the back of low completed supply
In 2Q18, 1,327 new private homes were completed, 32.9% less than in 1Q18 and 65.3% lower y-o-y. It is the lowest number of units completed since 2Q07 when 1,116 units were completed. The low completion numbers contributed to a low net new private homes supply of 1,152 units which fell short of new private homes demand of 1,994 units resulting in vacancy rate dropping to 7.1% in 2Q18 from 7.4% in the previous quarter.
The lower vacancy rate augurs well for the rental market as reflected by the 1% rise in the overall rental index. It is noted that the indices for non-landed homes in CCR, RCR, OCR as well as for landed homes have all turned positive, the first time since 2Q13.
This suggests that the recovery in the residential rental market is likely to be on a firm footing. The trend of low net new private homes supply is expected to continue, aided by collective sales units being withdrawn from the market, which will help to keep vacancy rates healthy and support further increases in rents.
Ms Tay Huey Ying, JLL’s Head of Research and Consultancy in Singapore, commented on the office and retail sector and said:
“Office capital value growth accelerates on upbeat investor sentiment
Confidence is riding high in Singapore’s office property market, spurring investors to snap up office assets at aggressive pricing in 2Q18. This has resulted in a quarter of accelerated growth in capital values, as evidenced by the 1.9% q-o-q rise in the URA’s price index for offices in the Central Region compared to the 1.3% q-o-q growth recorded for 1Q18.
Besides the two en-bloc deals involving MYP Plaza and Twenty Anson which were transacted at almost SGD 3,000 per sq ft and SGD 2,503 per sq ft of net lettable area, respectively, record unit prices were set in at least three strata-titled office buildings in the CBD in 2Q18.
Units spread across two floors in the freehold development ,The Octagon, changed hands at SGD 2,450 per sq ft (SGD 30.3 million) in May 2018, toppling the previous high of SGD 2,294 per sq ft achieved in November 2016.
The second transaction involved the deal on the 22nd floor of the 99-year leasehold Springleaf Tower at SGD 2,602 per sq ft (SGD 54.2 million) in June 2018, which exceeded the last high of SGD 2,566 per sq ft in August 2017.
Lastly, units on the 20th floor of the 999-year leasehold Samsung Hub were sold collectively for SGD 3,550 per sq ft (SGD 46.6 million) in April 2018, surpassing the previous high of SGD 3,501 per sq ft recorded barely four months ago in December 2017.
Investors’ optimism has been underpinned by the strong market fundamentals of steady demand and limited new supply which should support the continued growth in office rents into the medium term. Occupiers across a broad range of industries have been active in seeking space for expansion as they scale up on the back of the robust economic growth.
JLL foresees that CBD Grade A office monthly gross rents, which have climbed by more than 15% from the bottom of SGD8.41 per sq ft in 1Q17 to SGD9.71 per sq ft by the end of 2Q18, have room for further growth of at least 10% over the next 12 months. Rental growth could surprise on the upside if tightening supply is exacerbated by the withdrawals of aging stock for retrofitting and/or redevelopment.
Thinning opportunities for relocation/expansion in the CBD, coupled with the continued uptick in rents, could spur some occupiers to consider relocating out of the CBD. This will help in Singapore’s drive to bring work closer to home.
Retail property market continues to grapple with challenges
1Q18’s uptick in retail rents and price indices was short-lived and could not be sustained into 2Q18. All indices reversed gear and contracted in 2Q18, according to URA’s data. This underscores a market that remains mired with challenges, including technological disruption and rising operational costs.
Changing tenant profile and their location preference arising from the shift in consumers’ shopping habits is also a contributing factor to the continued softening of rents. For example, traditional fashion retailers are increasingly being supplanted by retailers of lifestyle and entertainment products and services such as gyms, even on prime spaces. These tenants generally take up large spaces and look for low rents.
Notwithstanding the steadier consumer sentiment amid healthier economic and employment environment, the growing online/omni-channel shopping culture is expected to see retailers approaching expansion with caution. Until consumers have a compelling reason to return to physical brick-and-mortar retail shopping, mall rents are likely to stay competitive especially in light of the large pipeline supply.”
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