Transcript extracted from Money FM 89.3 Weekly Wrap on 21 Jun 2024 with MOGUL.sg's Chief Research Officer, Nicholas Mak.
Good afternoon. It's your weekly wrap this week and there's been quite a lot of news from the property sector this week. So to share his views and his thoughts about what sort of trends this could suggest, I have on the phone with me, Nicholas Mak, the Chief Research Officer at MOGUL.sg.
First up, let's start with the new private home sales. It is lower. In fact it's the lowest for the month of May since June 2007, down nearly 80% year on year (YoY). Why this lull? Why now?
Well, I I think that actually if you were to compare it with just a month earlier, that means April, is not such a big drop. But if you were to compare it with May, one year ago 2023, it's because it was comparing with a very high base.
Because one year ago in May, there were two major projects that have been launched. The Continuum with 816 units. And The Reserve Residences at Bukit Timah, with 732 units. So property developers have launched a total of close to 1600 units that month and sold about 1039 units in May 2023. The property buying sentiments was also more positive back then.
So right now, just last month, the developers only launched a total of 248 units and sold 221 units. So the mood is more subdued, more cautious at the moment.
We also saw news from the latest state land tender. There are two sides at Great World City that got two bids, not a single bid for the one for Upper Thomson. But both have very attractive characteristics like being close to the new MRT stations and so on. So what conclusions do you draw from this lukewarm response, and did it surprise you?
Well, I think that what is a bit surprising is that there was no bid submitted for the Upper Thomson Road, Parcel A site, even though it's next to the new MRT called Spring Lee Station.
And I think there's a few reasons for this. Because the government attached a condition that for this Upper Thompson Road side, the developer need to build one part of the developments about 100 units of service apartments. And this is a new concept of long stay service apartments to be built, something like a hotel. You can have a room with shower but don't need to build kitchenettes, so it's a bit also like a dormitory. Like what some of us may have stay in during university days. You have your own room, but you have a shared communal kitchen and dining area.
So the whole idea is to lower cost and rental and they can be rented out to locals and expatriates. But the minimum leasing period is 3 months, so not every developer is that keen to build a service apartment and to operate it. They can't sell it unless they sell the whole thing lock, stock and barrel. So without any bids, this is the first time, in 23 years that a government land sale residential site, did not attract a single bid. It's a bit like the government invited the developers to a party with music, balloons and cake and nobody turns up.
So I think it's back to the drawing board, you know. Should they still continue with this? But even the other side, the one at Great World City, it only attracted two bids, which is a bit below expectation. And the top bid is, well, it's also a bit muted. I mean the price that is submitted.
Yeah, you mentioned the price. I think that it was reported that the top bid was about $1325 per square foot. What's your perspective on this number?
Actually before the tender closed, I think the estimated lamp price, by some other analysts including myself, we were expecting that a fair market value could range between $1500 to even $1600 per square foot. If the market is more buoyant, the bid of $1325 per square foot per plot ratio is lower than what most people, most market analysts would expect. And the lower land price also reflects the more cautious moods among developers.
Furthermore, the tender for this prime site is located right next to the Great World City MRT station, attracted only two bids. So it's a case of caution rules the day. This particular Great World City site's location is more attractive than somewhere in Upper Thomson Road. And the developers do not need to build any service apartment on this site. Therefore it's more attractive but they only attract 2 bids and at a slightly lower price.
So just for a dollar value, you were expecting it to be above $1500 when the top bid was $1325. So we're looking at about 10% below expectations. So assuming this moves forward at this figure, which is about 10% below a fair value price from your perspective, how do you think the price per square foot will eventually be to potential home buyers once these projects perhaps have been developed years later.
Well, the government needs to accept this price and to sell it. If the government were to really finally sell this site at the top bid of $1325 per square foot, and factoring the current development cost, the break even cost will range between $2280 -$2400 per square foot. Which means that the developer could potentially reap quite a high profit, or higher than normal, if they were to sell it about a year or so in the future.
They could potentially sell it at $3000 per square foot or above, which means that the profit margin could be as high as 30-40%. So yes, I don't think just because if the developer will buy the land at a cheap price, it doesn't mean that they're going to sell the condominium at a cheap price.
Right, right. And let's also take a look at other news we saw. Away from private homes, 7000 BTO flats are set to be launched as per announced this week, and while many things announced as well like shorter waiting times and some prime areas like Borna Vista and Tanjong Rhu were also announced. What sort of impact do you think that these developments may have with regards to demand for private homes since I guess roughly we are looking at the same TOPs?
Well, I think that they are going to see different types of reaction. Because firstly, there will always be some young couples who cannot afford to buy private property, and because they're Singaporeans, they're entitled to buy a BTO projects and they are also given priority.
Some of the BTO projects, as much as 90 to 95% of the units, will be reserved or allocated to first timers, so I think it's going to attract quite a lot of young buyers. So the impact on the private property side is not going to be that much because after all, these young families will not be buying private property in the 1st place, but the other thing is actually the prime location projects that you mentioned. Because they come with the 10 year Mandatory Occupation Period. So minimum they must stay in 10 years compared to the more standard type of flats which is five years.
This policy is effectively removing HDB upgraders demand from the private residential market for an additional five years because for that 10 years MOP period, the household cannot buy private property. Which means down the road, if the government roll out more and more of such prime location and by the next BTO project in October, they will also have a new classification called the Plus HDB flat, which also comes with 10 year MOP. So overall, we're going to see property in 14-15 years time, more muted demand in the HDB upgraders market.
Right and of course being in prime areas is I guess quite attractive for those people who are interested. But let's take a look at these prime area BTOs again. Well, it's very new, as you've mentioned, and of course the government has raised the subsidy recovery rate for the new prime location housing projects to about 9% this month. Why is that so and is this going to be discouraging the home buyers when they're applying for these two projects.
I think for people who do want to live near these two plant projects, just a bit of background, one of them is located at Holland Village and the other one is at Tanjong Rhu. And it has been a very long time since the government offered new HDB flats in these two locations. And furthermore, there are not a lot of vacant land, especially at the Holland Village area that is suitable or allocated to public housing.
So as a result, those who want to buy will still do so because you see this subsidy recovery rate only applies if the flat owner of this new prime location flats at these two locations were to sell it. If they don't sell it, they don't need to pay back. If you sell it they have to pay 9% of the valuation or the retail price to the government.
The reason why the government implemented or embraced this subsidy claw back rate is because the location of these two projects are very attractive and the government gave a slightly bigger discount, to make it affordable. So the whole idea is the government will make these flats available. They will sell it although it's more expensive than flats in other location, but they are still affordable to some home buyers.
But the claw back is they will have to pay back some of this money back to the government if they were to sell. Otherwise, we're going to have this lottery effect. People are going to make a lot of profit if they were to be able to get allocated a flat in these two locations. But by and large, based on my calculations, is that the profit margin is roughly about the same whether you buy the BTO flat at these two PLH project or the one at let's say Tampines, which is also up for offer this time round. So the whole idea is to make things equal more equitable for all HDB buyers.
So based on all this information you said and all this data that we have received this week, can we expect Singapore property market to trend relatively subdued for the future?
I think in the short term, especially for the rest of this year, the private housing market could be a bit more subdue. Partly due to weaker sentiments and the job market. The job market is not exactly very rosy right now and that will have a dampening effect on upgraders demand.
Because if you really have a home, you may not want to top up more money and you're not sure about your job security. You may not want to top up more money to buy a bigger place, gotten more home loans and basically subject yourself to more risk; if you are not sure whether you're going to get a bonus or whether your job might still be there 6 months down the road.
So what do you think is to happen if there is going to be an improvement across the sector.
Well, I think that the first and foremost the economy will need to pick up. We basically need to put more money in people's hands. Household income will grow, but they may grow at a slower rate. So the thing is that people will have to feel more confident and that has to come on the back of stronger economic growth, healthier job market and an increase in household income.
Alright, then we'll see if that happens. Thank you very much for your insights today, Nicholas.
It's my pleasure Sean.
Here's Nicholas Mak, Chief Research Officer at MOGUL.sg. I'm Sean Cheng, and this is Money FM 89.3.
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