Prices of mass market property launches could hit record high
Prices of mass market property launches could hit record high as developers face cost constraints. HIGH COSTS and limited inventory may result in new benchmark prices in the private residential market this year, with some suburban project launches expected to cost close to or exceed S$2,000 per square foot (psf).
Land, construction, and material costs have increased, while the number of unsold units has decreased, particularly in the Outside Central Region (OCR) or suburbs. Rising interest rates will raise the cost of development financing.
“Given the elevated land cost, which is a big component of selling price, we do expect suburban condo launches to see new benchmark prices,” said Wong Siew Ying, head of research and content at PropNex Realty.
According to PropNex Research, the average price of OCR launches will range between S$1,900 and S$2,300 per square foot. Prices for Core Central Region (CCR) launches could range from S$2,800 to S$2,900 psf and higher, while prices for Rest of Central Region (RCR) launches could range from S$2,400 to S$2,700 psf.
Goh Boo Kui, contracts director at Unison Construction, told The Business Times that labor and material costs have increased construction costs by 20-30% since the pandemic. Transportation costs have also risen.
According to Kenneth Loo, executive director of Straits Construction, construction costs for a suburban condo with 400-500 units are currently above S$400 psf of gross floor area (GFA), depending on finishings. This is a significant increase from the pre-pandemic range of S$250-300 psf.
Meanwhile, according to Lee Nai Jia, deputy director of the National University of Singapore’s Institute of Real Estate and Urban Studies, cash buyers are driving up demand (IREUS).
Dr. Lee added, however, that for projects to achieve new benchmarks, they must be part of an integrated development, close to an MRT station, or located in a mature estate with a lack of new launches. They could also be in areas where HDB prices are higher than those in new estates.
According to PropNex, the 99-year leasehold AMO Residence at Ang Mo Kio Ave 1, which is being developed jointly by UOL Group, Singapore Land Group, and Kheng Leong, could fetch an average selling price of S$2,000 to S$2,100 psf.
GuocoLand’s 99-year leasehold Lentor Modern, a private residential project with ground-floor commercial space, could fetch an average of S$2,100 to S$2,200 psf. Both projects will premiere in the third quarter of 2022.
The 268-unit Sceneca Residence, part of a mixed-use development along Tanah Merah Kechil Link, is expected to fetch S$1,900 to S$2,000 psf when it opens in the second half of 2022. The project is being developed by MCC Land (Singapore), The Place Holdings, and Ekovest Development.
Analysts are divided on whether such prices for suburban projects will face buyer resistance. According to ERA’s head of research and consultancy, Nicholas Mak, the increase in property prices is due to cost-push inflation rather than demand-led inflation. “Some buyers may be priced out of the market,” he said, adding that buyers could always look to the HDB market instead.
According to Dr. Lee of IREUS, some buyers may opt out, particularly those who are equity-constrained or risk-averse, but those who can afford to take the plunge may do so for fear of being priced out later: “These buyers are taking center stage, and we should see more of such behavior.”
Some buyers, according to OrangeTee & Tie CEO Steven Tan, may turn to real estate assets as an inflation hedge, while others may want to lock in interest rates before they rise further.
Tan also mentioned that inventory in the OCR is extremely low, leaving buyers looking for new launches with few options. “If cost is an issue, they must still choose OCR,” says one expert, “because many people may be unable to obtain executive condominiums.”
In April, there were only 726 launched and unsold private housing units for sale in the OCR, according to ERA’s Mak. This was less than the previously launched and unsold stock of 1,541 CCR and 821 RCR units.
With prices in the OCR on the rise, pricing in other regions may follow suit. “Pricing for the RCR and CCR would creep up,” predicted Dr Lee of IREUS.
Tan of OrangeTee & Tie predicts a chain reaction, noting that the price disparity between the three regions is narrowing.
According to an OrangeTee report, upcoming RCR launches could begin at S$2,200 psf. According to the report, prior to the pandemic, many new city fringe condos in Queenstown, Potong Pasir, and Eunos were launched at an average price of around S$1,800 psf.
In the face of significant unsold inventory in the CCR relative to the RCR and OCR, PropNex’s Wong expects CCR prices to remain “relatively stable.”
“The recent healthy sales at Piccadilly Grand and [email protected] launches — both in the RCR — at an average price of S$2,150 psf and S$2,387 psf, respectively, indicate that there are still buyers willing to pick up units at more than S$2,000 psf on average,” she added. She expects genuine home buyers to drive demand, though she expects many buyers to “right-size their purchase” in response to rising interest rates.
Following the latest cooling measures, Singaporeans and permanent residents purchasing second or subsequent properties face a higher Additional Buyer’s Stamp Duty (ABSD), while foreign buyers now face a 30% ABSD. The CCR is popular with both foreign buyers and investors.
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