Private residential market still holds appeal

THE year 2018 was a roller-coaster year for the private residential market. Following a high of rapid price growth in the first half of the year, market momentum was halted in the latter half by the eighth round of cooling measures. Initial demand emanated from the active collective sale market as well as pent-up demand from buyers on the sidelines, pushing up prices in H1 2018.

However, the onset of cooling measures, coupled by a weaker economic outlook and rising interest rates, began to dampen market sentiments. Buyers became more cautious, as sales started declining. Based on REALIS caveats released, sales in Q4 2018 declined by 38.5 per cent year-on-year (y-o-y). Under the pressure from slowing sales, the Urban Redevelopment Authority (URA) Price Index eased 0.1 per cent, quarter-on-quarter (q-o-q)(Exhibit 1).

Despite signs of a slowing residential market, private homes still hold an appeal for prospective homebuyers. Singapore's private real estate sector has held firm, largely deemed a safe asset in spite of trade tensions, a slowing manufacturing sector, as well as systematic risks common to other asset classes.

Going prime

Even with the cooling measures, there still exists much pent-up demand in the market. First, demand from owners who have sold their homes via en bloc and are seeking replacement homes is yet to be fully satisfied.

Second, there remains keen demand from buyers looking to invest in residential projects. However, with interest rates trending up and buyers increasingly cautious from the impact of cooling measures, it is likely buyers will go for properties at prime locations. Attracting demand from a larger catchment which also includes foreign buyers, purchasing prime district homes can potentially help avert some risk.

Separately, foreign demand is expected to be more subdued for the overall residential market, though interest in the high-end luxury market is anticipated to sustain. The uncertain external environment is likely to impact prices of all assets, so propelling high-end luxury residential projects is deemed to be valuable for wealth preservation.

Improving rental market

Rents for private residential properties are likely to improve in 2019, as vacancy rates reach the natural rate of vacancy (Exhibit 2).

Thus far, upcoming new completions remain moderate compared to the number of new home completions in 2017. According to Q3 2018 statistics from URA, some 10,119 private homes are expected to come on board, significantly lower than the 16,449 units completed in 2017.

The moderation in supply, coupled with the sustainable growth of the Singapore economy, is expected to support rents moving forward. Notwithstanding, rents are anticipated to stay largely flat in 2019, unlikely to witness any spikes in demand.

The hot EC market

Executive Condominium (EC) launches are expected to be popular in the year ahead, although selling prices will likely trend above S$1,000 per sq ft. Compared against private condominium prices, ECs are more affordable and appear to be less affected by cooling measures, as most EC buyers are also upgraders.

Upcoming EC developments at Seng Kang and Sumang Walk in particular are expected to be popular, not only attracting potential interest from the large catchment of HDB upgraders living in both Punggol and Seng Kang, but also likely to enjoy spillover benefits from the future development of the Punggol Digital District.

Good class bungalows

Overall sales of Good Class Bungalows (GCBs) increased to S$69.2 million in 2018 from S$61.5 million in 2017, despite a dip in the number of units transacted from 22 in 2017 to 20 in 2018. Notable GCBs transacted include homes at White House Park (S$93.9 million, September 2018), Belmont Park (S$57.5 million, January 2018) and Bin Tong Park (S$48 million, March 2018). With GCBs representing the apex of the landed housing segment, they will continue to attract demand from high net worth individuals, especially newly minted Singaporean citizens.

Co-living spaces

Co-living, adopting a similar concept to now ubiquitous co-working spaces, is expected to grow within Singapore and Asia. Bringing together a community of people living and sharing communal spaces and amenities, co-living will offer tenants a new living experience that is both affordable and flexible in nature. Current notable operators include Hmlet, Login Apartment, CP Residences, and Lyf by Ascott.

With the growth of the gig economy, co-living is expected to gain popularity amongst digital nomads.

Looking ahead, private residential property prices are likely to remain stable. While there are possible downside risks such as potential economic shocks arising from geopolitical tensions and rising interest rates, residential properties in Singapore are still largely attractive to many for portfolio diversification and wealth preservation. The market is likely to be segmented, with projects at choice locations likely offered at sweet spot prices of below S$1.5 million to retain their popularity. Additionally, older homes with expiring leases may be under greater pressure to lower prices in the days ahead, while rents are likely to stay stable, with possible diversion in leasing demand from new concepts like co-living spaces. W