Residential I Singapore REAL ESTATE DATATREND Executive Condominiums Keener Sense of Real Estate EC buyers options to dwindle in 2017 13 th April 2016 Synopsis EC market off to a good start Unsold inventory estimated at 3,637 as at end March 2016 Very few EC launches expected in 2017 Excessive price cuts not expected Available unsold inventory to dwindle in 2017 Introduction The Executive Condominium (EC) market is off to a good start in 2016, with the first EC launch of the year, Wandervale receiving a favorable market response. Located in Choa Chu Kang, the 534 unit project sold 292 units in March. This translates into a sold out rate of 55% during their month of launch, and has outperformed 2015 launches when comparing their sales during initial launch. Another 2 more EC projects; Parc Life and The Visionaire, are expected to be launched soon. The launch of these 2 projects will be keenly watched to gauge if there is momentum building up in the EC market or if Wandervale was an exception to the norm. RESEARCH & CONSULTANCY Celine Chan Research Analyst Wong Xian Yang Senior Manager E-mail: research@orangetee.com Website: www.orangetee.com Follow us on Singapore Residential Exhibit 1: Performance of EC projects on their month of launch The EC market has cooled down after a slew of cooling measures were implemented in December 2013, which includes the implementation of a 30% Mortgage Service Ratio (MSR), and a resale levy for 2nd time buyers. Tightened financing conditions have dampened demand and the resale levy has deterred many upgraders. Currently, the demand from 1st timers and 2nd timers is about 50/50 respectively, whereas previously it was 45/55. Even though there was an increase in income ceiling for EC buyers, demand has not yet picked up significantly. One possible reason is because a large proportion of EC demand are households earning $12,000 and below. As such, buyers are still very price and product sensitive, with demand skewed towards selected projects. Another reason would be that the negative effects of the cooling measures still outweigh the positive effects derived from the raise in income ceiling. Page 1 6
As of end March 2016, there are around 3,637 unsold EC units that have been launched but are unsold (not including 620 units from Sol Acres Phase 2). The number of unsold EC units reached a peak of 3,710 units in Oct 2015, but supply has been dwindling. The rise in the number of unsold EC units can be attributed to slower take-up rates and the large number of EC projects launched in 2015. For comparison, the number of unsold inventory for the private residential market stands at 24,546 units as of 4Q15. Though to be fair, the potential demand pool for the EC market is lower compared to the private residential market due to its restricted rules and regulations. Exhibit 2: Unsold EC inventory EC choices to narrow in 2017 On the back of the slowdown in the EC market, the EC supply in the Government Land Sale (GLS) Programme has been tapered. Only 3 new EC sites were released in 2015, which would yield about 1,010 EC units. This is about 72.6% lower compared to 2014, when 7 sites were released, yielding a potential 3,685 units. In 1H2016, there was only 1 site released, which could potentially yield a total of 635 units. However, the impact from the tapering of GLS sites would only be apparent in 2017, due to the time lag between the launch of the site in the GLS programme and the actual project launch into the market. Exhibit 3: Number of units released from GLS & number of units launched in the market Note: We assume Sol Acres phase 2 will be officially launched in 2H16 Page 2 6
Currently, the average time period between an EC site being launched in the GLS programme to market launch is typically about 17 months and above. For example, an EC site launched in 1H2015 can be expected to enter the market at around 2H2016 or later. The time difference between the launch of a GLS land tender and the tender award is about 2 months. Additionally, for EC land acquired after January 2013, developers are only allowed to launch units for sale 15 months from the date of award of the EC site, or after physical completion of foundation works, whichever is earlier. 3,750 EC units were launched in 2015, and in 2016, about 3,311 units are expected to be launched into the market. However, the number of EC launches in 2017 is expected to fall substantially, with only around 1,010 units to be launched. Will developers cut prices? Though upcoming projects may be launched at lower prices to entice buyers, it is unlikely that we will see excessive price cuts across the board for existing projects. There are a few reasons for this. Firstly, the upcoming EC pipeline is limited and even if new sites are released, there is still a time lag of at least 17 months before the project can come online into the market, giving current incumbents a comfortable time buffer for sales. Secondly, there is still a long time before Additional Buyer Stamp Duties (ABSD) deadlines would be a concern for EC developers. Under current housing regulations, developers are required to develop and sell all units in a new residential project (EC projects included) within 5 years, else they will be liable to pay ABSD charges on their land costs with interest. Most of the EC projects launched in 2013 or earlier are mostly sold out, and the earliest ABSD dateline for projects launched in 2014 would be in 2Q2018. Furthermore, majority of EC projects launched in 2014 are at least 50% sold. Exhibit 4: 2014 EC projects sold out (%) status and ABSD datelines Thirdly, demand for ECs is still relatively healthy even though it has slowed considerably since 2013. In 2015, developers collectively launched 3,750 units and sold 2,550 units respectively. This translates to an average take up rate of about 68%. Average take up rate is calculated by dividing the number of units sold by the number of units launched in the whole market. The average take up rate in 2013 and 2014 was 107% and 63% respectively. A take up rate of more than 100% means that the number of sold units outnumbered that of launches, Page 3 6
indicating sales from prior year launches. Though take up rates have fallen, developers are still moving units at a progressive rate. Available unsold inventory expected to dwindle by 2017 ECs are a product tailored to the sandwiched class, and this segment is expected to grow, in view of income growth and later marriages. Despite the slowdown in the market, demand for ECs remains resilient, it is only a matter of location and pricing. EC prices are unlikely to fluctuate much, as developers remain on solid financial footing and do not face much pressure to sell. Even though unsold inventory are at elevated levels, inventory may dwindle by 2017, given the expected dearth of new launches in 2017. Prospective buyers may be tempted to wait but what s left at the end of the day may not be the unit of choice. What s available in the market? Below is a snapshot of the EC landscape, with current and upcoming projects broken down by their regions and planning areas based on data extracted on 12th April 2016. Exhibit 5: Map of North Region EC projects and unsold inventory Exhibit 6: North Region Notes: 1. *- Estimated launch dates / number of units 2. Number of unsold units may differ due to returned units Page 4 6
Exhibit 7: Map of North-East Region EC projects and unsold inventory Exhibit 8: North-East Region Notes: 3. *- Estimated launch dates / number of units 4. Number of unsold units may differ due to returned units Page 5 6
Exhibit 9: Map of West Region EC projects and unsold inventory Exhibit 10: West Region Notes: 5. *- Estimated launch dates / number of units 6. Number of unsold units may differ due to returned units Page 6 6 Terms of Use: The reproduction or distribution of this publication without the express consent of the author is prohibited. This publication is provided for general information only and should not be treated as an invitation or recommendation to buy or sell any specific property or as sales material. Users of this report should consider this publication as one of the many factors in making their investment decision and should seek specific investment advice. OrangeTee.com Pte Ltd and the authors of this publication shall not accept and hereby disclaim all responsibilities and liability to all persons and entities for consequences arising out of any use of this publication.