Developers to hold firm on home prices, say analysts

Sales of new private homes may remain in the doldrums, but bargain hunters hoping that developers will slash prices to breathe life into the market are likely to be disappointed, analysts told TODAY.

Despite the slow market, several recent launches have sold well, showing that underlying demand can be realised into sales with the right marketing and pricing strategy. So, as long as holding costs remain low, developers can afford to keep prices steady and hope the market will swing in their favour over time.

“It’s a given that it’s very difficult to push prices up in the current market, but there’s still liquidity,” said Mr Colin Tan, Director of Research and Consultancy at Suntec Real Estate Consultants.

“I don’t think we have reached that stage where the market is on a definite decline. Volume is still coming in, whether slower or faster, and it won’t completely disappear.”

He added that developers currently do not have the urgency to cut prices as buyers are still drawn to developments that “tick the right boxes”. However, projects without “premium attributes” may have to rely on attractive pricing to move units.

“But even then, there are still ways to get away by pricing it at the same level and still sell; for example, by incorporating iconic designs or having very good layout,” he said.

Mr Tan added that it is also unlikely that coming launches will have lower price tags since land parcels have commanded high rates despite the property curbs and lending restrictions.

Sites under the Government Land Sales programme are continuing to sell at high prices, with a condominium site in Yishun Ave 9 awarded in a recently-closed tender at S$450 per sq ft per plot ratio. The break-even price for this site is estimated at S$900 psf ppr.

Latest figures from the Urban Redevelopment Authority showed that developers sold 724 new condominiums last month, 28 per cent higher than the previous month, but many analysts noted that the volume is a far cry from last year’s monthly average of 1,602 units.

Still, analysts singled out Hallmark Residences at centrally located Ewe Boon Road as a project that adopted the right pricing strategy to achieve strong sales.

“There are successful cases; for example, Hallmark,” said Mr Ku Swee Yong, Chief Executive of property agency Century 21.

“They lowered prices by 10 per cent and sold 26 units last month, compared with zero in December. So lowering prices helps, but there is not much incentive right now unless you are very near the end of the five-year mark.

“In the meantime, the holding cost is low, so why lower prices? While developers construct, they can continue selling.”

Developers have five years from the time of land acquisition to complete building and selling units in the development and be exempted from paying the additional buyer’s stamp duty.

In addition, developers with foreign shareholders are subject to the Qualifying Certificate rules, which require them to sell all dwelling units within two years of obtaining a Temporary Occupation Permit.

Mr Nicholas Mak, Executive Director of Research and Consultancy at SLP International, said many developers would only cut prices as a last resort.

“It’s not so straightforward. Lowering prices has a whole list of implications and I think things have to become very bad for the developers to consider that,” he said. “For the listed developers, lowering prices means having to write down the value of that particular asset. That will have an impact on their balance sheets, share prices.

“So I think it’s very much a last resort. Developers who need to sell may give certain discounts or promotions during seasonal holidays such as Chinese New Year or Christmas,” he added.

Source : Today – 20 Mar 2014

COMMENTS