Residential

SIMILAR CATALYSTS TO DRIVE SALES IN 2021

The residential market in 2020 performed well, exceeding expectations despite going through a countrywide lockdown and weathering against the recession which was brought about by the global pandemic. 2020 ended off on a positive note with 9,982 new homes sold, surpassing 2019’s volume by 0.7% y-o-y. Similarly, in the resale market, 10,729 resale units were transacted, 19.9% higher than the previous year.

This can be attributed to the healthy take-up of projects that are well located and relatively affordable, and the strengthening purchasing power of investors from leveraging on low interest rates. While the recession has led to higher unemployment and lower wages, the impact was uneven. Despite the volatilities that were brought about by the pandemic, Singapore continues to project itself as a safe haven for investments. Looking ahead, the same demand drivers will apply.

RETURN OF DEVELOPERS CONFIDENCE

Emboldened by 2020’s sales performance, developers are likely to capitalise on this sales momentum to clear their remaining project inventory in the coming year. There is also more certainty and clarity as the COVID-19 pandemic situation seems to be under control. There may potentially be about 30 projects comprising 7,940 units for sale in 2021, comparable to 2020’s launch volumes. Buying sentiment is expected to remain strong and help support demand for upcoming new launches.

IMPLICATIONS TO REAL ESTATE

Having a key differentiation in location and developers’ track record will help projects to stand out. Adopting a more realistic pricing strategy will also aid projects achieve a higher take-up rate.

AFFORDABILITY TO WIDEN

The market continues to be driven by smaller units, though there seems to be growing interest for larger units with higher quantum as well. Transactions of $1.5 mil to $2.0 mil accounted for 20.8% of all new sales in H1 2020, but it increased to 22.9% to H2 2020. In addition, transactions below $2.0 mil declined to 85.4% of all new sales in H2 2020, as purchases between $2.0 mil to $3.0 mil has been strong.

CBRE Research expects the quantum size for new sales transactions to continue to widen, while price sensitivity will remain key despite the low interest rates. Furthermore, 39.4% of units launched in 2021 are expected to be in the CCR while 38.4% of units launched are in RCR, which tend to be of higher quantum. Launches located in OCR will mainly stem from Government Land Sales (GLS) supply and will likely make their way into the market in H2 2021.

DEVELOPERS EXPECTED TO SHORE UP LAND INVENTORY

Unsold inventory was seen easing to 24,341 units by end 2020 since its last peak in Q1 2019, due to the dormant collective sales market and the limited injection of land though GLS for majority of 2020. Thus, developers were observed to be more aggressive to replenish their land inventory at the end of 2020, with the collective sales market gaining some traction.

IMPLICATIONS TO REAL ESTATE

CBRE Research foresees developers increasing their need to shore up their land inventory. As such, we may see stronger competition in GLS tenders, as well as seeking development sites via the private market.

LOCAL DEMAND TO DOMINATE THOUGH FOREIGN DEMAND WILL INCREASE

Foreign demand has taken a backseat in the beginning of 2020 due to countrywide lockdowns and the volatility stemming from the COVID-19 outbreak. Foreigners and Permanent Residents accounted for 22.1% of total purchases at the start of 2020, but it has decreased to 17.4% by Q4 2020.

However, CBRE Research believes that residential sales transactions will continue to be dominated by local demand, although foreign investors are likely to return as Singapore’s ability to manage the pandemic well will further lend credence to itself being a stable city to invest in.

SALES AND PRICE PERFORMANCE TO STAY POSITIVE

Underlying risks still remain; Singapore remains widely exposed towards its external environment, the recovery of the economy is likely to be uneven across sectors which may weigh on job security. Unemployment rates have yet to reach its peak and the recovery in the labour market is likely to be slow and long drawn. However, market sentiment is likely to recover slowly, driven by optimism surrounding the nationwide vaccine rollout, stabilisation of the economy and most importantly, low interest rates which will help to widen buyer’s affordability.

IMPLICATIONS TO REAL ESTATE

CBRE Research expects the Private Residential Property Index to continue to edge up and may achieve a 0% to 2% growth in 2021. New home sales are likely to fall in the region of 8,000 to 9,000 units. Though we are expecting a relatively healthy pipeline of launches, majority of the new projects are located in CCR & RCR, where their higher price quantum may limit the potential pool of buyers.