Property price divide between new and resale private homes anticipated to remain substantial in 2020

Property price divide between new and resale private homes widened to 40% in 2019

In 2018, the price gap between new and resale private homes stood at a considerable 35%. New homes in the CCR averaged out at $2,756 per sq ft, while their resale counterparts commanded a substantially lower $2,048 per sq ft. In 2019, the gap widened to 40%: new homes in the CCR averaged $2,953 per sq ft, while resale units remained relatively flat at $2,105.

This widening property price divide between new and resale homes was also observed across the board among residential properties in the RCR and OCR.

While the gaps were respectively 29% and 39% in 2018, in 2019 they widened to 39% and 43%. Will this divergence continue into 2020?

According to Ms Alice Tan, EDMUND TIE’s senior director of research and consulting, “with ample new supply coming on-stream and demand  staying stable for 2020 in the light of low interest rates, it is anticipated that the price differential between the primary and resale non-landed markets will remain at 40 to 45 per cent”.

There is therefore a distinct possibility that the property price divide between new and resale homes in 2020 will outdo the preceding year.

EDMUND TIE’s chief executive officer, Ms Ong Choon Fah remarked: “A confluence of factors has led to remarkable resilience in the property market in Singapore. Asia is widely recognized as the next growth engine evidenced by capital inflows into the region, including increased FDIs, setting up of regional HQs and other critical business activities. As both financial and human capital flow into the region, the demand for residential property – further catalysed by low interest rates and easy availability of credit – will follow suit.”

“At the domestic level, home ownership is an important aspiration for Singaporeans, and we have over the years, seen keen interest in HDB owners who leverage on their HDB asset to upgrade to private property once the conditions are in their favor,” Ms Ong added.

Data from 2019 supports this observation of property price divide. In Q4 2019, a total of 4,693 units were launched in the RCR – an increase of 12.5 per cent from 2018. Correspondingly, sales volume picked up by 4.7 per cent annually, which registered a total of 4,204 new sales units last year. In the OCR, there was a total of 5,134 units being launched in 2019, which is 24.5 per cent higher from the previous year. New sales volume reached 4,679 units last year, an increase of 16.6 per cent from 2018.

Whether new private homes will indeed command an even higher premium above their resale counterparts in 2020 will very much depend on how the COVID-19 situation pans out. COVID-19 has now been classified as a worldwide pandemic by WHO, and the global economy is expected to take a severe hit. However, the silver lining is that Singapore is robustly supported by its political stability, quality human capital, the transparency and certainty guaranteed by the rule of law, and world-class business infrastructure and institutions. It therefore remains an investment destination of choice for local and foreign property investors.

Ms Tan said: “Investors looking beyond short-term gains, and who are deliberating on the possible investment destinations offering stable returns and eventual divestment clarity vis-à-vis a backdrop of stable economic fundamentals are likely to look at Singapore real estate as a reliable asset class to park their wealth in.”

Ms Ong added: “Singapore has been a gateway city to the region and as a business hub, has attracted businesses, talent and investments over the years. Singapore’s response to COVID-19 has received international accolades. This is only possible because of our social capital built over the years with the government, businesses and community working in concert to keep businesses going and while we carry on with our daily lives. The safety and security factor, reflected in our healthcare, has added to Singapore’s attractiveness.

“While we remain in state of high alert and the economy will be severely affected in the short term, when the pandemic is over, Singapore is likely to benefit as a trusted hub. This will support businesses and the property market including residential.”

Mr Paul Ho, chief mortgage officer at iCompareLoan, said, “property investments in Singapore will be among the top preferred financial tools for High Net Worth Individuals (HNWI). Masterplan 2019 positions Singapore as a livable city, a global business gateway and tourist haven. With such positioning by the government, it is understandable why property investment volumes will be driven-up here. There is a lot of excess fluidity in the region and Singapore is seen as a safe haven for real estate investments.”

He added, “the Singapore government is also proactive in keeping the property market here stable. More recently, it drew up a slew of measures to curb a property bubble from being formed here. Investors see all such activities by the Government in a positive light. Although it curbs excessive speculation, these measures assures investors their investment is safe in a country where the rule of law, especially in economic matters, is paramount.”

The economic impact of the Coronavirus issue is expected to be short-lived based on the current situation, says a note from Cushman & Wakefield (C&W). The report said that the Singapore government has tried to put in place multiple lines of defence to minimize the chances of the virus spreading further.

Any disruption to market activity is expected to be short-lived and so the real estate impact will be minimal said Ms Christine Li, C&W’s Head of Research for South East Asia. Although the real estate impact will be minimal, the impact on the hospitality sector is more immediate said the report.