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New condo launches take-up rate remains weak, Research

by • April 5, 2019 • Research and AnalysisComments (0)177

New condo launches take-up rate remains weak said a research report by RHB. The report by Research Analyst Vijay Natarajan at RHB Securities said his analysis of new condo launches showed take-up rates at launch weekends have been rather low, at 10-20%, vs 30-60% in previous years.

new condo launchesThe low take-up rate for new condo launches is not surprising the report said as buyers – being price-conscious – are adopting a wait-and-see approach amidst a huge supply in the pipeline.

Mr Natarajan believes that this trend is expected to continue, with only selective projects with strong attributes and pricing outperforming the rest. Overall, RHB expects a primary sales volume of 8,000-10,000 units for 2019.

Besides new condo launches, the research also opined on the private resale market, and said that it expects volumes to remain steady.

“For the private resale market, we expect volumes to remain steady vs last year on the back of en bloc sellers looking for immediate replacement homes, spillover demand from new launches and the release of units previously held back on the expectation of potential en bloc sales.”

Referencing the Urban Development Authority’s (URA) 1Q19 flash estimates which showed that overall property prices declined 0.6% q-o-q (+3.2%YoY) following a 0.1% q-o-q dip in 4Q18, the report noted that it is unsurprising that the high-end segment saw the most decline.

“Unsurprisingly, the high-end segment saw the maximum decline (-2.9% q-o-q). As noted in our previous reports, the high-end segment is the most susceptible to the latest cooling measures as a high proportion of purchasers are mainly investors and foreign buyers.”

Private residential property prices dipped 0.6% in Q1

The report noted that with about 50 new condo launches in the pipeline, new private home prices remained flattish.

“Mid-tier (-0.2% q-o-q) and mass market property prices were largely flattish. With > 50 projects in the launch pipeline (~19,139 units) buyers have plenty of choices – which largely limits developers’ pricing power. Developers also have little room to cut prices in new launches as many are sitting on expensive land acquired during the recent en bloc cycle. As such, we expect price growth to stay flattish in the 0-2% range this year.”

RHB said that in view of the challenging market conditions mentioned in its report, developers are likely to be compelled to focus more on volume and less on margins. The research added that it expects margins to remain squeezed, at around 5-10%, compared to c.15-20% seen in the past.

In saying that it will stay neutral preferring diversified plays and real estate agencies, the RHB research report said that with muted price growth expectations for residential properties, it sees no near-term catalysts for developers with large local market exposure, and expect share prices to stay range-bound.

“We prefer developers with well-diversified geographical exposure and high recurring income, along with volume-related plays (real estate agencies), which we expect to remain resilient,” said Mr Natarajan.

Residential properties price growth significantly moderated in 2018

The research report by RHB which touched on new condo launches, mirrors another recent report by Edmund Tie & Company (ETC). ETC’s Housing Report noted that the residential properties price growth was significantly moderated in 2018 and that the cooling measures introduced by the Government in July last year, moderated residential properties price growth significantly.

The ETC report noted that despite the cooling measures, the URA private residential price index rose by 7.9 per cent in 2018 vis-à-vis 1.1 per cent in 2017. This was largely attributed to the 3.9 and 3.4 per cent q-o-q increases in the index in Q1 and Q2 2018 respectively.

The 2018 residential properties price growth could possibly have been in the double digit range if not for the cooling measures. Units priced under $1.5m continued to make up 69.8 per cent of new sale and 61.8 per cent of resale transactions for non-landed properties, while units priced above $1.5m gained in market share, noted the research.

ETC noted that price hikes for newly launched units were more pronounced than resale units, as the higher land prices developers paid during the collective sales’ ‘rage’ (which started in May 2017) were factored into these new units.

Conversely, after three consecutive years of increase, total private residential sales volume fell 10.8 per cent to 21,658 units in 2018, largely underpinned by weaker demand in H2 2018 post-cooling measures, it said. Sales volume in H2 2018 declined by 26.4 per cent to 9,181 units, compared to the 12,477 units in H1 2018.

Similarly, new sales fell by 16.3 per cent to 8,367 units while resale and sub sales declined by a smaller 6.8 per cent to 13,291 units. With regards to the outlook on residential properties price growth, the report said that following the cooling measures, the sales volume for collective sales and private residential units have moderated significantly, as developers and buyers have taken a wait-and-see approach.

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