Over 2,000 homes for Q4 launch?

Source : Business Times - 18 Oct 2008

Expect more high-end and mid-range launches before the year ends.

DEVELOPERS, looking to clear their stockpiles of unsold homes before the economy takes a turn for the worse, could launch more mid-range and high-end projects before the end of the year.

And for projects that have already been launched, anecdotal evidence shows that developers have already started to cut prices in order to move unsold inventories.

Data compiled by CBRE Research shows that some 34 properties with a total of 2,012 units may be launched before 2008 draws to a close. Of these, some 10 projects with a total of 1,104 units are in Singapore’s core central region (CCR), while another 13 projects with some 718 units are in the rest of central region (RCR). Developments priced mid-range and above are usually in the CCR and RCR.

The launches could go ahead even as appetite for higher priced homes remains weak. In September, developers put up 258 units for sale in the CCR. But just 70 homes were sold in the region - a take-up rate of 27 per cent. The RCR fared slightly better with a take-up rate of 61 per cent. Some 370 homes were launched and 224 were sold there.

Developers could have pushed out homes in the CCR - even with the current sluggish demand for high-priced homes - in order to move stocks before prices fall even further, analysts said.

“With the uncertain economic outlook, the increase in launches of higher-priced CCR properties is no indication of improving sentiment and it could be an attempt by developers to clear stocks in CCR in anticipation of further weakness in the property market,” said OCBC Investment Research analyst Foo Sze Ming.

Some could also be selling to generate cash. “Take-up is poor but as long as the developers sell a few units, they will be able to generate cash-flow for interest rate expenses and also start construction,” said Ku Swee Yong, director of marketing and business development at Savills Singapore.

Anecdotal evidence also shows that in order to sell, some developers are now accepting lower prices. Far East Organization’s listed unit Orchard Parade Holdings and Wing Tai sold eight units in Floridian in September, after registering no sales since February. But the sales came as the median transacted prices fell 16.8 per cent from $1,735 per square foot (psf) in January to $1,443 psf in September.

Similarly, some units at Madison Residences along Bukit Timah Road were sold at median prices of $1,801 psf - 10 per cent lower than a year ago. Viva in Thomson Road and Park Infinia in Wee Nam Road achieved $1,555 psf and $1,501 psf - about 5 per cent less than comparable projects early this year, CBRE noted. But even then, demand remained weak. Among the developments priced mid-range and above, there were only 10 projects that achieved sales of over five units for the month of September. A key driver of demand in the high-end and mid-range residential market has been growth in migrants due to strong job creation in Singapore. With this trend slowing, the demand for pricier homes is affected, analysts said.

The increase in new launches and weak take-up rate in September saw the number of launched but unsold properties increase by 10.1 per cent month-on-month to 3,903 units. “With properties in CCR and RCR contributing to the bulk of this increase, we do not foresee a pullback in unsold inventory level, especially with weaker sentiment towards higher-price properties,” noted OCBC’s Mr Foo. “Coupled with the weak macro outlook and tighter credit condition, we think more developers are likely to follow suit with price-cutting.”

But the fact that there are some sales at lower prices is encouraging, analysts said. “It shows that there are some potential buyers out there who are waiting for the right price to enter the market,” said Nicholas Mak, director of research and consultancy at Knight Frank.

Looking ahead, the mass market is likely to get support from HDB upgraders since the HDB resale market is going strong, analysts said. But other potential buyers are expected to wait on the sidelines - which could prove to be bad news for sellers of high-end and mid-range properties.

One potential source of buyers is those with handsome gains from collective sales who have yet to find suitable long-term replacement homes, said Tay Huey Ying, Colliers’ director for research and advisory. “Some of them who have opted to reside in public flats are waiting for an opportune time to re-enter the private home market and are keeping a vigilant watch on private home price movements,” she said.