Residential resale prices continue to trend up

Chinese buyers most resilient as foreign demand weakens due to European debt crisis.

Jones Lang LaSalle preliminary estimates showed that residential capital values in the secondary market for the non-landed segment continued to rise on the back of encouraging sales volume in 2Q10, according to a Jones Lang LaSalle report.

The Prime and Central capital values led the way in the quarter’s growth by registering 8% and 7.6% on average, respectively. These areas, being the traditional prime residential district and downtown area respectively, continue to draw buyers who are willing to pay a premium for choice location and city living.

The Prime market which had not fully recovered to the last peak in 1Q08, saw average capital value for typical prime properties reaching $1,350 per sq ft in 2Q10, surpassing the last peak for the first time; and, that for luxury prime properties reaching $2,500 per sq ft, still some 8.4% below the last peak.

These growths have been supported by an improvement in rental income arising from a rental turnaround as well. Prime rentals have grown by 10.8% on average, over the first half of this year, supported by increased leasing demand from expatriates in the financial and petrochemical sectors.

In terms of sales volume, 3,127 caveats were lodged in the resale market in 2Q10 based on preliminary figures from the Urban Redevelopment Authority (URA). Although sales momentum has lost some strength judging from the 21.6% drop in caveats lodged in 2Q10, the sales volume is still some 78.4% above the historical average of 1,753 units per quarter from 2000 to 2009.

Heightened uncertainty arising from the euro zone debt crisis has kept buying interest at bay, especially that of the foreigners, resulting in the lower sales volume. The number of foreign buyers fell by 28.3% q-o-q to 898 while that of local buyers slid by 21% q-o-q to 2,112 in 2Q10.

Amongst the major groups of foreign buyers, the demand pullback from the Chinese buyers has been the least. The emergence of the Chinese buyers is changing the dynamics of foreign play in the local residential landscape. Chinese buyers accounted for 18.5% of caveats lodged by foreigners in the secondary market in 2Q10, up from 6.2% in 1Q07.

Capital values of residential properties in Shanghai and Hong Kong have all surpassed their last peak by 5% and 6% respectively. High net worth individuals from China who usually look to Hong Kong for high-end residential investment may turn to Singapore as luxurious home prices are around 24% below that of Hong Kong and 10% below the last peak, making Singapore properties comparatively more attractive.

Ms. Jacqueline Wong, Head of Residential at Jones Lang LaSalle noted, “Increasingly, Chinese buyers are climbing up the price ladder and buying up properties in the Prime market which is traditionally dominated by the rich Indonesians and Malaysians. These are high net worth individuals who can spend at least $2.5 million and can well afford some of the most luxurious apartments in Singapore.” Caveats lodged by Chinese buyers for resale units priced $1.5 million and above are more common today.

“Asian buyers will continue to drive Singapore’s residential market as the region recovers faster than the rest of the world. However, foreign buyers are expected to put off their purchases until the market can better ascertain the impact of euro zone crisis on returns in the local residential market. Taking the cue from the primary market which has seen fewer project launches and lower sales volume in recent months, the secondary market expects a further slowdown in both transactional volume and price growth in the next half of the year,” Dr Chua Yang Liang, Head of Research South East Asia commented.