braddell view

En Bloc Craze 2017 Vs 2007

Last week, URA released the property market statistics for Q3 2017 with the broad market index increasing by 0.7% compared to the previous quarter.  What is more noteworthy is how the authorities took effort to outline the potential new supply coming onto the market by end of 2018 to 2019 as a result of recent spate of en bloc deals – a whopping 9,300!

 

Together with new supply from government land sales, this will add almost 17,000 new units or double the supply that is already in the pipeline (with planning approvals) for launch next few years.

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Here’s a brief summary of all the high-profile en bloc deals which all started with Shunfu Ville last year 2016, and the pace is fast and furious from 2nd half of 2017 onwards averagining almost one a month:

 

MonthEnbloc Condo Enbloc Price
2016 MayShunfu Ville (HUDC)$638m by Qingjian Realty
2017 MayRio Casa (HUDC)$575m by Oxley Holdings
2017 JunEunos Ville (HUDC)$766m by MCL Land
2017 JulSerangoon Ville (HUDC)$499m by Oxley Holdings (consortium)
2017 AugTampines Court (HUDC)$970m by Sim Lian Group
2017 OctAmber Park$906.7m by CDL
2017 OctNormanton Park (HUDC)$830.1m by Kingsford
2017 OctChangi Garden$248.8m by CEL (Chip Eng Seng)
2017 NovWho’s Next?

 

 

As most developers are now buying en bloc sites at record psf ppr for fear of missing out on land bank replenishment, the intriguing question on most mind’s woud be – at what prices would all these new condos be launched at in 2019?

 

Exactly a decade ago, those who were active in the property market back in 2007 will remember how the property cycle started with en bloc sales in prime district 9/10 in Singapore including one massive en bloc deal of a HUDC estate Farrer Court for a record-setting $1.338b sold to Capitaland (now D’Leedon).  That is the first en bloc deal to cross the magic $1b mark in Singapore.  The next likely project to cross the $1b or perhaps even $2b might be Braddel View coming up.

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With supply taken out in relatively short time and people being displaced from homes during the ensuing contruction phase in Singapore’s prime district where you see cranes everywhere, soon after demand filters down to city-fringe and mass markets (en bloc sellers downgrading).  This time round though, the en bloc craze started with Shunfu Ville HUDC estate in outskirts and by 2nd half 2017 became more broad-based as more owners sensed the hunger of developers topping up their land bank in anticipation of a pick up in demand from 2018 onwards.

 

 

Besides how the en bloc fever has started from the mass market, we think the biggest difference in the current en bloc craze 2017 versus 2007 is this – we now have TDSR (Total Debt Servicing Ratio) at 60% firmly in place, along with ABSD (Additional Buyer’s Stamp Duty).  What this means is that how much of a person can borrow, in terms of his monthly mortgage repayment calculated at 3.5% interest (mandated by MAS) together with all his other monthly debts, is capped at 60% of his monthly qualified income.  In other words, someone in his mid-thirties who earns a fixed monthly income of $8,000 with no other borrowings could get a maximum loan of around $1m and buy a property up to $1.25m (80% loan).  Likewise, a strong dual-income couple who earns $8,000 each with no other borrowings but with a first mortgage at $3,000 monthly would be able to get a loan of $1.4m.  However, because this is a 2nd mortgage for an investment property, the maximum LTV (loan-to-value) gets reduced to 50%.  Technically the couple is good for a purchase up to $2.8m if they are prepared to put down cash of another $1.4m.  Most wouldn’t.  And not to mention there is another set of costs at 7% ABSD (for Singaporeans buying a 2nd investment property) which is paid in cold hard cash or CPF.

 

The biggest challenge for developers now is pricing strategy in 2019 especially for those buying lands outside the central area where URA has stipulated in Sep 2012, in a bid to rein in shoebox units, that all new developments must have a minimum average unit size of not less than 70 sqm.  This central area covers mostly CBD/Marina Bay and prime district 9 Orchard (up to Balmoral), a region which has already gone through en bloc renewal in the 2007 cycle.

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The per square foot price of launches in 2019 from these new en bloc sites would definitely be much higher entrenching what is already a two-tiered pricing property market in Singapore in the last five years where $1.5m would get you a large 1400 sqft 3-bedder in an old development but only a 2-bedder that is less than half the size.  One can no longer compare location based on psf between older and newer condos (generally those less than five years old) – otherwise you would not be able to justify paying $1400-1500 psf for a unit at Watertown in Punggol.

 

Does this mean the new supply from 2019 would be grossly overpriced?  No I do not think so.  Just like all things in life, a renewal process is needed to ensure older developments that is no longer in good state of repairs is slowly being replaced by newer swanky designs.  And there is a general organic inflation over time for all things including cost of accommodation.  The younger population with rising affluence would also aspire newer and better living environments as the country matures.  There is nothing wrong with that.  The issue only comes when there is excessive exuberance on the part of owners and developers that cause this organic inflation rate for land costs and new launch prices to shoot up too quickly and spiral into a form of asset bubble.  Personally, I think that is unlikely to happen now with TDSR in place as it puts a dampener on buying capacity or demand to start with.  The onus really is on developer’s space planning and pricing.  Still I think most launches in 2019 will take a longer time to sell out unless of course some one price their project at the most affordable range at reduced margins, or ABSD for foreigners is tweaked to bring in additional demand to the market.

 

Remember the property market is dynamic in nature.  I believe TDSR itself as a credit policy would also need to be adjusted over time when the government recognize the unaffordability of new condos and move it up to 70% to satisfy the electorate’s rising aspirations for quality living.  It will be interesting to see how all these forces play out over the next two years.

 

Our advice to those looking to enter the market, do it sooner than later.  In fact, do it in the next few months before 2018 begins which typically see more buyers in the market in the 1st half of the year.  Plus you could still lock down interest rates from as low as 1.30%!  Speak to our consultants today and also find out how you could save $700 in legal fees when you apply for your private property purchase loan through us!

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

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About Darren Goh

Darren Goh is the Executive Director of MortgageWise.sg, a thought leader in the Singapore mortgage industry, with frequent interviews and quotes by the press - Business Times, Straits Times, Zaobao and EdgeProperty for his views on the latest mortgage trends. He is an avid property investor with successful careers in banking & real estate before becoming an entrepreneur.
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