GOOD DEMAND: Prices of new homes such as North Park Residences (left) have been resilient, as seen in the sale of 561 units at the Yishun project in Q2 at a median price above S$1,300 psf.

Singapore

A RECORD volume of private home completions in the second quarter sent the vacancy rate north, and as leasing demand could not keep up with the gush of completions, rents continued to ease.

On the sales front, the volume of private home transactions in both primary and secondary markets rose substantially in Q2 over the preceding quarter, based on data from the Urban Redevelopment Authority, even as its overall private home price index slipped for the seventh consecutive quarter.

The widely-watched market barometer eased 0.9 per cent quarter-on-quarter in Q2, after shedding 1 per cent in Q1; the index is now 6.7 per cent below its recent peak in Q3 2013 (the total debt service ratio or TDSR framework was introduced in late-June 2013). From the same recent peak, URA's private residential rental index is down 6.1 per cent.

As more new homes are completed, the pressure will continue to mount on vacancy rates to go up and rentals to slide further, say property consultants.

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Assuming prices continue to ease at roughly the same pace as they have over the past seven quarters, averaging about 1 per cent a quarter, it may be another one to two years before a 10-15 per cent decline materialises, reckons JLL national director Ong Teck Hui. "That may well provide some indication as to when the cooling measures could possibly be relaxed or removed, from the price point of view," he said.

Alan Cheong, research head at Savills Singapore, said it has been in the resale market where prices have been soft. "For new sales, prices have been resilient, as seen in the sale of 561 units at North Park Residences in Q2 at a median price above S$1,300 psf...From a heuristic standpoint, this pricing is considered very firm for a Yishun address even taking into account that this will be part of an integrated project."

That said, he expects overall prices to head down in the coming quarters. Even if the government relaxes the cooling measures and sales volumes go up, it may not necessarily mean that prices will increase, he reasoned, "because the stock of unsold inventory comprises mainly larger units, which under the current TDSR rules, are well beyond the affordabilty range of most Singaporeans".

The volume of private homes sold through the resale market rose 46 per cent to 1,827 units in Q2 from 1,250 units in Q1; the latest figure is also the highest since the 2,073 units in Q2 2013.

"The resale market has been soaking up buying demand in the absence of new launches; moreover, buyers are more likely to find better deals in the resale market, where sellers are willing to negotiate on prices," said Wong Xian Yang, senior manager, research and consultancy, at OrangeTee.

The vacancy rate for completed private homes shot up to 7.9 per cent at end-Q2 from 7.2 per cent at end-Q1. The increase was due largely to the north-east region, where the vacany rate rose to 11.8 per cent at end-Q2 from 4.7 per cent at end-Q1, said Mr Wong, citing URA Realis data. This was due to the completion of several big projects in the area including A Treasure Trove, Bartley Residences and The Luxurie.

The increase in vacancy rate was even sharper for non-landed homes, rising to 9.2 per cent at end-Q2 from 8.3 per cent at end-Q1.

Islandwide, 25,071 private residences stood empty at end-Q2 - an all-time high, noted Desmond Sim, head, CBRE Research, Singapore and South-east Asia. This may be traced to the surge in developers' home sales during 2011-H1 2013, amid the era of cheap liquidity and an increase in state land sales.

Developers received Temporary Occupation Permit (TOP) for a record 6,969 private homes in Q2, more than double Q1's 2,976 units. Following the completion of these 9,945 units in H1, a further 11,618 units are projected to receive TOP in H2, taking the full-year number to 21,563 units, which would surpass last year's record of 19,941 units. A further 21,000 units are slated for completion next year.

With 58 per cent or nearly 27,100 of the 46,829 private homes slated for completion from H2 2015 to 2017 located in the suburbs, the vacancy rate for Outside Central Region (OCR)) could tip to double digit in late 2016 or 2017, Mr Wong predicts.

The torrent of completions will keep putting downward pressure on rents. CBRE projects a 5-8 per cent rent drop for the whole of 2015.

Mr Ong of Savills highlighted that currently, the rent softness appears more pronounced on the ground than that reflected in URA's rental index. Leases for some shoebox units in OCR and the city fringe or Rest of Central Region that were signed on at say, S$2,600 a month in late-2012 are now being renewed at S$2,000, translating to an annualised 10 per cent rent decline.

URA's figures also showed that number of private residential units under construction has fallen to 54,706 from a high of 68,716 in Q2 2013, noted Mr Ong of JLL "This is a good sign...but it is still quite a way to go before the supply under construction normalises back to around 35,000-40,000 units."

Clarification: An earlier version of this article incorrectly stated that the vacany rate in north-east region was 5.8 per cent at end-Q1. The correct figure is 4.7 per cent. The article above has been revised to reflect this.