Private housing market unlikely to see price war, say analysts

SINGAPORE — While more developers have taken to cutting prices to improve sales amid a property slowdown, potential home buyers anticipating a broad-based price war may be disappointed as the private residential market has yet to reach a tipping point that could trigger such a situation.

Analysts told TODAY that most developers are not in a rush to lower prices given that demand has yet to reach a standstill. Projects that have been relaunched at a discount are isolated cases that are unlikely to result in intense price competition in the market, they said.

Multiple sets of cooling measures and loan restrictions introduced last year have kept buyers on the sidelines, forcing some developers, including CapitaLand, South-east Asia’s largest listed developer, to re-launch certain projects at lower prices to generate demand.

CapitaLand in April re-launched its Sky Habitat condominium in Bishan at about 10 to 15 per cent lower than its initial launch price, helping it sell 130 units in that month alone. This was compared with the 182 units sold since Sky Habitat’s launch in April 2012.

In February, MCL Land cut prices at Hallmark Residences at Ewe Boon Road by about 10 per cent. Sales have jumped about eight times to 41 units since, versus the five sold before the discount.

And at Wheelock Properties’ The Panorama in Ang Mo Kio, a 10 to 15 per cent price cut helped offload an additional 80 to 85 units, adding to the 56 units moved since its initial launch in January.

Despite these success stories, developers are unlikely to launch into a broad-based price war, said analysts.

“If we look at the few developers that are cutting prices, their projects tend to be a bit isolated. For example, there are no other new 99-year launches near The Panorama and there’s also no similar competing project around Sky Habitat … I don’t think we’ve reached a situation where there’s a price war,” said Mr Nicholas Mak, executive director of research and consultancy at SLP International.

Singapore’s low interest-rate environment is also expected to continue to sustain demand in the long run, offering little reason for developers to slash prices too drastically.

“I think developers will not participate in a price war until interest rates start rising steadily. At the moment, there’s no indication that prices will collapse in a big way ... Many developers are doing okay financially, they just have to nudge it, offer a little discount, to keep their income stream,” said Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants.

“Many times the discounted units are the relatively unpopular ones, for example, those on lower floors or facing a less desirable direction. These units are valued at a lower price anyway, so a market-wide impact is quite limited.”

Private home prices fell for the first time in almost two years in the last three months of last year, slipping 0.9 per cent on a quarterly basis. In the first quarter of this year, prices declined another 1.3 per cent, showed Urban Redevelopment Authority (URA) data.

But recent moves by developers to reduce prices are helping to draw buyers’ attention.

In April, 745 new private homes were sold, up 55 per cent in March.

To further boost activity, developers of slow-moving projects may want to consider taking prices a little lower, said Ms Penny Yaw, head of research at HSR International Realtors.

“In recent years, we have seen property developers throwing in non-cash goodies to justify higher selling prices and to encourage sales. We think the time is ripe to take out some of these freebies and to simply reduce the selling prices … If prices were to be reduced by 15 to 20 per cent, the unsold units would move fairly quickly,” she said.

But several developers contacted by TODAY said they have no immediate plans to slash prices.

TA Corp, part of the joint venture developing The Skywoods at Dairy Farm, said: “Despite the impact of the Total Debt Servicing Ratio on overall market sentiment, we have seen encouraging take-up for The Skywoods … We are monitoring buyers’ sentiment closely and have no plans to change our marketing strategy as yet.”

Far East Organization also said it has no plans to relaunch any of its projects.

Meanwhile, buyers of projects that have since been relaunched at lower prices need not be too concerned that banks will come chasing them for a top up on their housing loans.

“I think it’s still too early for the banks to request for top ups as the price falls are still moderate and the ability of borrowers to service their housing loans remain strong,” said head of mortgage advisory at REMS Advisor Chew Ching Lien.

“While the existing owners may be sitting on paper losses, the property market moves in a cycle and valuation may come up again when these projects are completed.”

OCBC Bank’s head of consumer credit risk Joseph Wong echoed that sentiment, saying that the possibility of invoking a margin call on housing loans is low given that movements in local home prices are rather stable.