Price gap widens, with new sales surpassing resales for the first time in three years
While new private home sales appear to be on the rebound, underpinned by higher prices of new launches and resilient demand amid an uncertain economic climate, the outlook may not be as good for resale condos. According to a report by OrangeTee & Tie, resale transactions have slowed and some owners in the suburbs and city fringe areas may have lowered asking prices in the face of competition from new launches.
The result is a widening gap between average prices of new and resale condos - a trend that tracks back to 2015 but has accelerated more significantly in the first three quarters this year, the report said. This is happening because new projects are being launched at higher prices in recent months, causing new home prices to surge ahead of resale prices.
Some new launches are priced higher because developers paid higher land prices towards the end of the land-buying cycle that ended in early July last year. Freehold projects or those located near an MRT station are also able to command a price premium. Illustrating this trend, the average prices of non-landed new private homes were 28.2 per cent higher than those of resales in the first three quarters of this year, compared with a 23.8 per cent gap last year, and a 15.1 per cent gap in 2017, the report said.
Ms Christine Sun, head of research and consultancy at OrangeTee & Tie, said: "Resale condo sellers don't have as much firepower to overcome the cooling measures, but developers can stimulate sales through talks, roadshows and other incentives (for new homes).
"Even if resale condo sellers want to tag their prices higher, their unit sizes are much bigger than new homes, so they can't increase the per square foot price too much or they will risk hurting buyer affordability."
Furthermore, the number of new sales surpassed that of resales in the first three quarters this year, a reversal of the situation in the past two years, she noted. For instance, in the first three quarters this year, 53.1 per cent of total sales, or 7,469, were new sales, while 46.9 per cent or 6,607 were resales. But, in 2018, 40.3 per cent or 8,795 were new sales, while 59.7 per cent or 13,009 were resales. The shift is likely due to more new projects being launched this year, and more new homes being transacted, she said.
But overall condo sales are still resilient because the price-to-income ratio has come down to 4.6 this year, from 5.1 in 2016, which means housing prices are more affordable as median household incomes continue to rise, noted Ms Christine Li, Cushman & Wakefield's head of research for Singapore and South-east Asia.
Prices of new homes jumped 9.8 per cent on a year-on-year basis across all three market segments in third-quarter 2019, with the largest rise in RCR (16.5 per cent), followed by OCR (8.1 per cent) and CCR (1.9 per cent), according to OrangeTee.
In the RCR, a number of new projects including Amber Park and Sky Everton have sold above an average price of $2,000 psf, which helped fuel the faster price growth, Ms Sun said. In comparison, overall resale prices rose a mere 1.6 per cent year on year in third-quarter 2019. CCR prices rose 1.1 per cent, but OCR prices dropped 1.5 per cent and RCR fell 2.1 per cent, due to competition intensifying from new launches in recent months, she added.
Still, the current average price gap is not as wide as in 2010 when new home prices were 41.2 per cent higher than resale non-landed homes, she noted.JLL's senior director of research and consultancy Ong Teck Hui noted that the gap widened more significantly from around 2010 due to the reduction of new unit sizes so that the overall price would remain affordable. "With more smaller homes including shoebox units being incorporated in new projects (starting around 2010), the psf pricing could be raised as long as the absolute sale price stays affordable," he said.
On whether the gap will continue to widen, Mr Ong said: "Since measures have been put in place to limit the downsizing of units, this may have less of a bearing on the price gap. But, given time, the stock of older homes will grow and more 99-year leasehold developments will see their leaseholds running down, which could result in slower capital appreciation for such properties," he added.
Adapted From The Straits Times, Oct 16 2019