Record home sales - how long can it lasts?

Record home sales in June 09. The Urban Redevelopment Authority (URA) data showed that private residential home sales rose to a record high of 1,825 units in June 2009. This surpassed the previous record of 1,723 units in August 2007. In fact, the recovery has started in February and continued for five straight months. We expect sales to remain strong for the rest of 2009.

After the recent sales momentum, developers have lowered discounts for private residential homes. Nevertheless, buyers continued to be attracted by the lower discounts and the Interest Absorption Scheme (IAS) offered by developers. The rally in the stock market and the recovery of the Singapore economy in 2Q09 has also led to the robust property sales.

The majority of the homes sold were in the mass market and mid-end segments. Moreover, most of the buyers continued to be HDB upgraders. 8 @ Woodleigh, a condominium project by Frasers Centrepoint Homes, stood out as the best selling property. All 330 units were sold in June 09 at a median price of S$804 per square foot (psf).

These suggest that primary home take-up rates remain strong, even with launch prices close to last cycle’s peak prices. The availability of low mortgage rates is keeping investor interest high. Interestingly, valuation mismatches and weak rental yields seem to be stalling secondary market momentum, while banks are now offering valuations that are 10-12% lower than asking prices. We remain of the view that Singapore home-price momentum will stall.

Primary market: Good take-up rate continues. Take-up rates at new launches this weekend were healthy, but slightly lower WoW. High-priced Volari sold 55-60% of total units and mid-market Waterfront Key sold 60% of launched units while high-end 360 Skyline sold only 8% of total units. Better demand was seen for smaller units, with buyer profile largely local. Investment interest has risen, given price momentum and lower mortgage rate availability. Prices at some newer launches are closer to/higher than previous cycle peak prices, eg Ascentia Sky, SilverSea, The Gale, Volari and Waterfront Key.

Secondary market: Expectation mismatch, deceleration. Checks on the secondary market suggest that seller expectations have risen significantly - asking prices are c. 20-25% higher than last transaction prices, while bank valuations are now 10-12% lower than seller’s asking prices. Activity was also brisk, however property brokers mentioned that volumes are falling.

Rental market: Yields in the 3.0-3.5% range. Checks on the rental market suggest that asking rental yields are in the 3-3.5%. This is still higher than the short tenure floating mortgage rates boffered by banks, but more in line with the longer tenure (one-to-three year) fixed rates. Bulk of the home financing is happening at the shorter end of the curve, suggesting risk, if short-end Sibor/Sor move upwards.


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