Landed Private Residential Properties

Landed house - long term investment

By OrangeTee Research and Consultancy
Published 23 July 2012

Safe haven for long term investors

Prices of landed private residential properties have outperformed

Singapore private residential property market has been on a strong bull run since its recovery in 2Q2009, astounding many participants. Purchasers of landed properties have made exceptional gains in capital value over this period. Based on URA’s Landed Private Residential Property Price Index, prices of landed housing has increased by 79.7% from 2Q2009 far surpassing the 47.9% gain in prices of non-landed residential properties.

Detached houses in the East shows the sharpest price increase

Detached houses recorded the best performance among the 3 different types of landed properties with a 84.1% price increase in relative to prices in 2Q2009. This is followed by terrace houses (81.4%) and semi-detached houses (70.1%).Prices of detached houses has been increasing at an average of 4.8% every quarter since 2Q2009. Detached houses located at the East region recorded the sharpest change in prices as compared to other regions with an average price change of 6.3% per quarter.

Key drivers: Lack of completions and limited supply

Over the past 3 years, only an average of 73 units of landed housing are completed each quarter. This is 59% below the average completions of 180 units per quarter from 1995-2009. Landed private properties have also historically enjoyed higher occupancy rate of 95.1% compared with the 91.9% occupancy rate for non-landed properties. Going forward, only 3,885 units are expected to be completed from 2012-2016, which averages about 780 units per year. This will only bring average completions to the approximately same as historical level.

Increasing wealth could provide continued support

The growing wealth of Singapore residents will provide sustained support for this segment. According to the latest Annual Report by IRAS, the number of individuals within the income group of $100,000 p.a. and above has increased by 1.3% as compared to the previous year. With a limited supply, landed properties in Singapore are expected to be a safe haven for long term investors. Our favoured locations are districts which have underperformed.

Exhibit 1: Price increase of landed and non-landed properties as compared to 2Q2009

Landed private residential property

Strong growth of prices of landed private residential properties

The private residential property market in Singapore has been on a strong recovery since 2Q2009. URA’s Private Residential Property Price Index registered 10 consecutive quarters of increase before declining by 0.1% in 1Q2012. Over this period, the prices of landed residential properties grew by 79.7%, far surpassing the 47.9% growth of prices of non-landed private residential properties. On average, prices of landed properties increased by 4.7% every quarter since 2Q2009. This far exceeds the 3.0% average growth of prices of non-landed properties over the same period.

Exhibit 2: Landed and Non-Landed Residential Property Price Index

Exhibit 3: Change in Residential Property Price Index (Landed & Non-landed)

Recent weakness in prices should be short-lived

The prices of landed properties have fared marginally worse than that of non landed properties in recent quarters. Prices of landed properties increased by 0.1% quarter-on-quarter for consecutive quarters in 4Q2011 and 1Q2012.

Comparatively, prices of non-landed private residential properties decreased by 0.2% in 1Q2012 after showing an increase of 0.3% in 4Q2011. The overall property price index has already experienced an upturn by registering a slight increase of 0.4% in 2Q2012 according to URA’s flash estimates and we expect landed housing property prices to register a sharper increase.

Analysis of prices by house type

Prices of detached houses increased the most

Prices of all types of landed residential properties have been increasing since 2009. Between 2Q2009 and 1Q2012, prices of detached houses have shown the sharpest increase of 84.1%, compared with a 70.1% increase for semi-detached houses and 81.4% for terrace houses. On average, prices of detached houses and terrace houses grew at an impressive average of 4.8% every quarter since 2Q2009. Over the same period, prices of semi-detached houses increased by an average of 4.3% each quarter.

Exhibit 4:Prices of landed residential properties by housing type

Exhibit 5:Quarterly change in prices of landed residential properties by types

As of 1Q2012, prices of detached houses decreased slightly by 1.2% in 1Q2012 whereas prices for semi-detached houses and terrace houses increased by 0.2% and 1.7% respectively. This is the first decline in prices of detached houses since 2Q2009. The sharper fall in prices of detached houses in the quarter is reflective of the overall weaker market conditions in the high end market.

Analysis of prices by region

Prices of detached houses in East Region increased the most

Between 2Q2009 to 1Q2012, prices of detached houses in the East region has increased by 104.4% whereas prices of detached houses in the North-East region increased by 83.4%, followed by the Central region with an increase of 82.3%. On a quarter-on-quarter basis, prices of detached houses located in the East Region recorded the highest increase of 6.3%, followed by detached houses in the North-East Region (5.3%) and the Central Region (4.7%).

Prices of other types of landed housing also grew strongly

Within the terrace housing segment, prices in the East Region showed the strongest increase, averaging 5.2% per quarter, This is followed by the North-East Region (5.1%) ,and the Central Region with 4.0% . Prices of semi-detached houses in the North-East Region showed the highest price increase of 5.4% , followed by the East Region with 4.0% and the Central Region with 3.9%.

Exhibit 6: Average change of prices of landed properties from 2Q2009 to 1Q2012,by region

Key drivers of strong price growth

Low completions in the past 2 years

The sharper increase in prices of landed properties can be attributed to the slowing pace of addition to the landed housing stock as net additions to the landed housing stock has been falling since early 2000s. In 1Q2012, only 14 units of landed housing were added to the market, a sharp slowdown compared to 154 units added in 4Q2011, according to URA’s numebrs. Over the past 3 years, there have only been 73 landed housing units additions per quarter. This is far below the average addition of 180 units per quarter based on 1995 to 2009 figures.

Exhibit 7: Declining net additions to stock of landed residential properties

The proportion of landed housing has been declining as a result of the low completion of landed housing in recent years. As of 1Q2012, landed residential units only constitute 25.9% of the total private residential housing stock, compared with 27.8% in 1Q2010. The declining availability of landed properties has made landed housing an even scarce commodity. This has been a key reason contributing to the strong growth of prices of landed properties over the last 3 years.

Consistently higher occupancy rate than non-landed private properties

As of 1Q2012, URA’s statistics showed that the average occupancy rate of landed private residential properties was 96.6%. Comparatively, the occupancy rate of non-landed properties was 93.3%. Over the longer term, the average occupancy rate of landed housing, at 95.1%, has also consistently been higher than that of the non-landed properties, at 91.9%.

Exhibit 8: Average occupancy rate of landed private residential properties

Limited supply in the future

By end of this year, we could see an addition of 587 landed residential units to be completed according to URA’s statistics. Furthermore, the completions of landed housing is expected increase in the coming years. We anticipate completions to peak at 1,439 units in 2015. With the limited supply of land for landed housing in the future (total of approximately 3,885 units completed between 2012 to 2016), we forecast the completions of landed housing to ease.

Exhibit 9: Expected supply in the pipeline

Supported by growing wealth

Increasingly attractive to HNWIs

Singapore has been successful in attracting high net worth individuals (HNWI) to reside here. Several prominent ultra-high net worth individuals who have chosen to make their homes in Singapore include investment guru Jim Rogers, movie stars Jet Li and Gong Li, and even Facebook co-founder Eduardo Saverin, amongst others. Most recently, self-made Australian mining tycoon Nathan Tinkler who has built a fortune in mining, with an estimated worth of S$1.2 billion, has announced his move to Singapore.

For the first time since 2009, Singapore has overtaken Hong Kong in terms of its population of HNWI, according to the Capgemini-Royal Bank of Canada World Wealth Report. In the Wealth Report 2012 by the Citi Private Bank, the respondents placed Singapore as the 5th most important city in the world over the next 10 years, ahead of Hong Kong as well.

Growing wealth of residents provides further support

Even with the recent administrative tightening of rules on foreign ownership of landed properties, we believe that the growing wealth of Singapore’s resident population will provide sufficient support for landed housing. According to the latest Annual Report by IRAS, the number of individuals within the taxable income group of $100,000 p.a. and above is 218,199. Ths is a 1.3% increase as compared to the previous year which marks the 4th consecutive year of increase in the number of residents with taxable income of more than $100,000.

Exhibit 10: Number of residents by assessed taxable income group

Sustainable demand with limited supply

Flash estimates of the Private Residential Property Index released by URA indicate that private property prices have grown by 0.4% in 2Q2012. We estimate that prices of landed private residential property should also rebound from the slight dip in 1Q2012. Going forward, even as the pace of growth of prices continue to slow, we feel that the landed housing market will be more resilient due to the relatively limited stock and the lack of land for new landed housing development. The growing wealth of Singaporeans and the traditional preference for landed housing will also continue to act as a pillars of support for the demand of this property type.

Jack Sheo

Jack has been guiding real estate clients since 2010 to make sound decisions pertaining to Singapore real estate based on data, stats and trends. Well-liked by both his local and international clients for his friendly yet professional approach to helping them, he welcomes the opportunity to have a chit chat session to see how he may be of assistance.

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