Making sense of the Singapore Residential Price Index

Every month, when the National University of Singapore (NUS) releases flash estimates for its Singapore Residential Price Index (SRPI), there will always be at least one reporter who will be feeling perplexed as to how he or she should read the indices. Are property prices heading upwards, downwards or trudging sideways?

Compared to the Urban Redevelopment Authority’s (URA) quarterly price index, the SRPI is a lot more volatile as it is compiled on a monthly basis. It is also confined to completed non-landed properties.

The SRPI basket tracks the prices of 370 private residential projects (excluding executive condominiums) located across 25 postal districts here that were completed between October 2001 and September last year.

It is hard to analyse the numbers especially if the discussion is confined to indices for just two months. In the latest release, the figures are flash estimates for last month against finalised or revised figures for January.

It does not help that property prices are a lot more stable than they were compared to a year ago. As a result, it is not uncommon to find indices moving in opposite directions on alternate months and sometimes diverging within the same month.

The latest numbers …

The SRPI release on Wednesday showed prices of completed properties softening by 0.8 per cent last month compared with the previous month. In particular, small apartments islandwide (up to 506 sq ft) and the Central Region (excluding small units) – comprising districts 1 to 4 and the prime residential districts of 9, 10 and 11 – saw the greatest decline, down 0.9 per cent month-on-month.

The sub-index for Non-Central (excluding small apartments) also appears to have finally caved in to negative sentiment, falling 0.6 per cent on a monthly basis.

Are we headed for a buyers’ market over the next few months, a theory put forward by some analysts?

There is a real danger of reading too much into the numbers if we were to focus solely on data for just two months.

Instead, I find the accompanying chart on the NUS website ( much more useful as it shows trends for the past few months stretching as far back as 2001.

My own interpretation of the chart is that prices of completed properties for the Central region are clearly on a downward trend. There is a small hint that prices of small apartments may follow likewise but the evidence is not as clear. As it covers small apartments in all locations islandwide, it could be a net effect of small apartments in Central and Non-Central areas. As for completed properties in Non-Central areas, prices look to be flattening out quite nicely.

The shoebox question

Another interesting feature I noted from the chart is that prices for small apartments significantly underperformed the market during the trough periods in 2004/2005 and in 2008/2009.

Investors of shoebox apartments or small apartments may want to take a closer look at this chart. The pattern could repeat itself in the next downturn. If it does, it is best to swiftly unload such properties before it reaches the bottom. The problem is, a significant proportion of private homes bought over the past year or so are small apartments.

Going forward, the consensus is that trends observed for completed properties in Central areas last month are likely to be repeated in the coming few months but opinions are not unanimous for small apartments or properties in Non-Central.

Is the recently introduced Additional Buyers’ Stamp Duty (ABSD) responsible for the problems faced by properties in Central areas?

I doubt so because the ABSD was only imposed recently whereas the problems facing that particular niche market were already evident for more than a year.

As I pointed out in an earlier commentary, I feel it is because almost all of these properties were bought under the differed payment scheme. As such, changing market conditions had no impact as there was protection from the market for as long as they were under construction. Almost all of these properties would have been completed by now or would be completed within the next few months.

Once the buyers received their keys, they have to make a decision on whether to re-sell or take out a loan. The moment this is done, the protection the property used to receive is lifted. The softening of prices for this market segment is due to the unravelling of this market rigidity – the effect of investors who have chosen not to lease or occupy but to re-sell.

Going forward, there are more market rigidities to be unravelled. These would apply to properties bought after the introduction of sellers’ stamp duty last January and the ABSD in December.

For the next three to four years at least, any weaknesses in private home prices would not come from these properties but mainly from properties bought before last year.

By Colin Tan – head of research and consultancy at Chesterton Suntec International.

Source : Today – 30 Mar 2012

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