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Value buys lure buyers back to private housing market

Value buys lure buyers back to private housing market.

The Urban Redevelopment Authority (URA) released earlier this month the flash estimate of its private property index for the third quarter of this year. Many were surprised by the estimate, which showed a 1.5 per cent price decrease, the steepest decline since 2012.

Perhaps as a consequence of the continued price falls, buyers have been entering the market, with 4,352 caveats lodged from July to September. Although this is not the final figure for the third quarter, it is already higher than the 4,159 units transacted in the corresponding period a year ago.

The positive buying sentiment appears to have spilled over to the final quarter of the year. The Alps Residences in Tampines and Forest Woods in Serangoon — launched within a week of each other — both recorded impressive sales. Buyers bought 280 units at The Alps Residences and 337 units at Forest Woods during their launches, translating into take-up rates of 45 per cent and 65 per cent, respectively.

Empirically, we observe that there are two distinct groups of buyers. The first group consists of property investors. These buyers are primarily interested in buying a unit, then letting it out for rental income. Using the sale of small units (mainly one and two bedders) as a proxy for investment demand, it can be seen that sales at these two projects were very much investment driven. Small units accounted for 86 per cent of the sales at The Alps Residences, and all one-bedroom units have been sold. Similarly, at Forest Woods, 66 per cent of all units sold were small units.

This reflects investor confidence in the local property market. Although the private residential rental market is currently weighed down by oversupply, it is unlikely that this situation will persist for a long time, as the Government has been scaling back the provision of land sites for private housing.

The private residential rental market is therefore expected to improve in the next few years. Thus, new project launches have been well received by investors because there is a construction period of about three years. As such, owners will only have to start looking for tenants when the building is almost completed. By then, the rental situation may have improved and it might be easier to find a tenant willing to pay a higher rent.

Project-specific factors come into play, too. In particular, these two developments benefit from their locations. The Alps Residences is located in Tampines, which is Singapore’s first regional centre and a major employment node. Other major commercial centres nearby include Changi Business Park and Changi Airport. Thus, rental demand is expected to be high.

Forest Woods, although lacking a regional centre address, makes up for it with its superb transport connectivity. It is only a five-minute walk from Serangoon MRT Station, which functions as an interchange between the North-East and Circle lines. This makes commuting a breeze, which would appeal to tenants. These attributes contributed to the strong investment activity at these two projects.

The other significant group of buyers is made up of owner-occupiers, either upgraders from public housing or affluent young couples looking for their first home. Because they are buying for their own stay, there has to be a combination of location, price and product in order for them to commit to a purchase. To this end, The Alps Residences and Forest Woods have delivered.

The Alps Residences is close to many amenities. Families will be attracted to the three malls in Tampines, which house retailers such as Isetan, BHG, H&M, Muji, Topman and Uniqlo. Also, primary to tertiary educational institutions are located in Tampines, making schooling an ease for residents at The Alps Residences. Combined with a relatively affordable price point, it is not difficult to see why many have bought units for their own stay.

Forest Woods, despite being the pricier of the two, managed to strike a balance between price and location. Buyers felt it was a good deal for a development with a city-fringe location and a short walk away from an MRT interchange.

The successful project launches this year show that more buyers are returning to the market. With sentiment improving, we expect this trend to continue. Developers will build on the success stories when launching their projects and buyers can capitalise on this window of opportunity to pick up value buys.

Adapted from: TODAY, 21 October 2016