Singapore’s pandemic-fueled home buying fever is cooling faster than what everyone has expected.
Last week ended with the shocking news that three new launches sold a total of merely 53 units in their first weekend:
– TMW Maxwell sold 7 units out of a total of 324 units (2.2 percent sold)
– The Arden sold 27 units out of a total of 105 units (25.7 percent sold)
– Orchard Sophia sold 19 units out of a total of 78 units (24.4 percent sold)
Reasons behind disappointing sales
1. TMW Maxwell
The most disappointing sales result came from TMW Maxwell. Situated between Chinatown and Tanjong Pagar, it is the en bloc site of former Maxwell House. The deal was concluded in a thriving market in May 2021. Chip Eng Seng, SingHaiyi and Chuan Investments jointly bid for $276.8 million or $8.8 million above the asking price of $276.8 million.
The mixed development comprises three levels of commercial units and 324 residential units. SingHaiYi admitted that 2.2 percent sold is much lower than their expected take-up rate of at least 20 percent.
In hindsight, the developers could have saved huge budget on putting up advertisements and building a sales gallery. They should simply send a sales e-mail to their own clients. Honestly, seven units could be easily snapped up by senior management, family members or relatives of the three developers and their main contractors.
Thanks to the government’s relentless escalation of ABSD. Tanjong Pagar developments have been out of favor for investors for some time. There are many Tanjong Pagar condos with prices falling by the year since their launch date. In May, brand new project One Bernam was launched at an attractive price of $2,500 psf. Even so, it still took time to clear the units and offered buyers attractive discount off the listed price.
What made the TMW Maxwell developers think that they can sell their project at $3,310 psf?
2. The Arden
Similarly, the journey of The Arden is far from smooth sailing.
Developer Qingjian Realty originally targeted to launch the new project in the first quarter of 2022. It was a much better time before rising interest rates and heightening inflation and recession pressures. In a red-hot new sale market back then, The Arden would have done better than selling 27 units or 25.7 percent of 105 units.
QIngjian completed the building of the sales gallery in early 2022. But it kept waiting for the approval for the purchase of three adjoining remnant State land parcels at Phoenix Road.
Back in July 2019, Qingjian Realty purchased the former Phoenix Heights en bloc site at $42.6 million. The purchase price was low. But the four-year waiting time was expensive. It would be even more pricey if the developer could not clear all the units before the 5-year ABSD deadline.
New projects see fewer units sold
Yesterday (August 15) URA released the July data on developer sales. Last month developers launched a total of 2,156 new private home units and sold 1,412 of them. The take-up rate is only 65.5 percent.
Four big projects were launched last month, including Grand Dunman, Lentor Hills, Pintree Hill and The Myst. The first two were 54 to 56 percent sold while the last two were 29 to 31 percent sold. Going forward, developers have no choice but to further lower their expectations in their upcoming launches.
How we miss the good old days when new projects were 100 percent fully sold or at least 80 to 90 percent sold after the first weekend!
The table below summarizes the recent trend of new launch take-up rate in the first weekend.
According to the URA data, there were 45 new units returned to the developers in July, compared with 48 returned units in June. The Continuum with a first weekend sales of 26.5 percent had 14 units returned to the developer last month. This is on top of three units returned the previous month. Fingers crossed the seven buyers of TMW Maxwell will hold onto their units.
By the way, the percentage of units sold during the first weekend is not most important. The big question is: How much longer and when exactly the developers can clear the rest of the units left in their new project, hopefully before the ABSD deadline.
Home buying choice paralysis or market paralysis?
Last weekend’s disastrous new launch sales performance is a big blow to the new sale market. There are over ten new projects waiting to be launched in the coming few months.
Anyway, the lunar seventh month or Ghost Month begins today (Aug 16). In order not to upset the “spirit”, developers and property agencies can consider taking a break during this critical time.
There is a recent article in Singapore Business Review titled “Sales of future new launches likely to experience some friction”. PropNex CEO said “if there are ample unsold supply in the vicinity will drive friction in the sales of future developments. With ample options, it lessens the urgency to snap up units right away during the launch weekend.” He also blamed the muted sales performance of the three projects over the weekend on the “choice paralysis” of homebuyers.
Is this choice paralysis or market paralysis? Who knows?
During our recent 2023 Mid-Year Singapore Property Review and Outlook seminar, I shared with the audience the top five questions asked in my one-on-on property consultation sessions. These days the top question is: Where and what should I buy for the next few years?
Did it sound the alarm? For these prospective homebuyers or investors, there is no urgency to buy. They can wait for a few years. In fact, they can buy or not buy – depending on the price, interest rates, economic situation, net return, etc.
According to a PropertyGuru report published on August 7, the number of enquiries has dropped for both the HDB and private home market. Data shows that the latter is reaching its peak and prices may stabilize in the coming quarters.
So what’s the urge to buy now? Unless you don’t mind buying at the peak of the market.
A tough time for property agencies
According to URA, total private home transactions fell 20.9 percent year-on-year in the 2nd quarter. New sale and resale transactions dropped 11.3 percent and 29.7 percent respectively.
PropNex CEO reinforced time and again that new projects have “healthy sales”. There is “genuine underlying demand” and buyers have “ample liquidity”. Unfortunately, the agency’s 1HFY2023 gross profit, revenue and earnings were down 25.1 percent, 22.9 percent and 18.4 percent respectively.
Fellow agency Apac Realty or ERA is no better. Net profit tumbled 70 percent and revenue fell 24.2 percent in 1st half of the year ended June 2023.
Both CEOs blamed April’s cooling measures that doubled foreign buyer ABSD to 60 percent for the disappointing results. However, foreign buyers only make up 5.4 percent of total condo sales in the first half of this year. That percentage was probably driven up by the rush to buy before the upward adjustment of ABSD.
Honestly, their public relations company could have done a better job by drafting a more convincing quote. If you were in sales, you knew countless convenient excuses to explain why you can’t sell. For instance, the good performance last year is a high base for comparison. The results are within our expectations and in line with the global market situation.
Just never admit that the private home buying market is increasingly challenging. Greedy sellers set unrealistically high selling prices despite buyers are holding back home buying. Agents find it hard to close a deal.
Insist that we don’t expect developers to cut prices or roll out incentive schemes. Simply turn a blind eye to “not-so-new” projects that have been offering discounts and rebates since the second quarter.
Anyway, homebuyers won’t know supply now well exceeds demand. Nobody will check the URA website to find 20,492 newly-TOP units flooding the market this year.
Property developers is a sea of red
Likewise, the latest report cards of developers are a sea of red. They are plagued by high borrowing costs and lower take-up rates.
– “CapitaLand Investment’s H1 profit falls 19% to $351 million on lower portfolio gains”, The Straits Times, 11 August 2023
– “CDL reports 1HFY2023 earnings of $66.5 mil, down 94.1% y-o-y from absence of substantial divestment gains”, The EdgeProp, 10 August 2023
– “UOL’s 1HFY2023 earnings down 64% y-o-y to $135 mil mainly on lower fair value gains”, The EdgeProp, 10 August 2023
– “Wing Tai issues profit guidance, expects ‘significant decrease’ in net profit for FY2023”, The EdgeProp, 4 August 2023
– “OUE sees 54.6% fall in first-half profit on lower fair value of investments”, The Straits Times, 8 August 2023
“Inflation causes higher construction (material and labor) costs for developers. For homebuyers, inflation implies lower affordability, less spending power and weaker buyer sentiments. On the other hand, higher loan payments from rate hikes are putting more financial pressure on all borrowers, including the developers, builders and homeowners.”
– “How rate hikes hit developers and homebuyers”, PropertySoul.com
In my presentation at the seminar, I pointed out the fact that developers are increasingly conservative in acquiring new sites. In 2017, there were as many as 13 bidders going after the same land plot. Recently, there were only one to three bids submitted for a tender. Furthermore, developers acted like scaredy cats that wouldn’t dare to go alone without one or two partners.
Don’t underestimate the power of 40 percent developer ABSD!
Besides, developers are bidding lower and lower. In 1 1/2 years’ time, the government sold a nearby Dunman site 21 percent cheaper than in January 2022. GuocoLand also acquired its third piece of land in Lentor 18.5 percent lower than what it bought in July 2021.
Food for thought
Just like the private home market, there are more planned government land sales but less keen buyers. Developers that have the guts and financial muscles can expect to buy land at a discount. This gives them the flexibility to offer deeper discounts when they face strong competition or unfavorable market conditions.
For home buying, as our featured speaker Ku Swee Yong said, if you look carefully now you will find value in some good buys. These are definitely not the newly-launched projects in the RCR or OCR region. You must look beyond the home buying herd rushing in at the last minute afraid of missing the last train.
Now you can watch the recording of the presentations at the 2023 Mid-Year Singapore Property Review and Outlook seminar. Watch the presentations of Ku Swee Yong and Vina Ip here.
I will share with you the good deals in the current market and how to do your research in the new online course Buy The Right Condos. You can also check out other online courses.
The video 2023 Singapore Private Home Market is available now.
If you need advice on property matters or residential properties in Singapore, you can check out my one-to-one consultation service.
My book Behind The Scenes of The Property Market is available for preview and order online.
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