Price pressure to persist in Singapore private residentials

This is a side effect of developer moves to downsize unit sizes and court mass market buyers, says Maybank Kim Eng.

The Urban Redevelopment Authority released a flash estimate over the weekend that predicts a 0.1% dip in 1Q12 private residential prices, and this could slide even further in coming quarters if developers insist on pursuing a unit downsizing path.

Here's more from Maybank Kim Eng:

The Urban Redevelopment Authority’s (URA) flash estimate released this week showed that the private residential property price index slipped from 206.2points in 4Q11 to 206.0 points in 1Q12. This represents a marginal drop of 0.1% compared to the 0.2% increase in the previous quarter, and is the first decline since 2Q09.

We can think of two explanations for the dip – a surge in sales of mass market projects in the Outside Central Region and the growing number of shoebox apartments which are perceived to be more affordable. 

The flash estimate revealed that prices in the Outside Central Region recorded a 1.2% increase against a decrease of 0.9% in the Core Central Region and 0.7% in the Rest of Central Region. The overall decline of the property price index is likely due to the cheaper unit prices for mass market projects, which lowered the overall average value of the basket of transactions. Delving deeper, there is a conscious move on the part of mass market developers to shrink unit sizes in their projects in a bid to increase the number of units and edge up average psf prices.

In our view, if the trend of downsizing persists, developers may be forced to reduce prices in the event of a greater-than-expected supply of private residential homes. Investors and first-time home buyers alike should be wary of this possibility and not be caught short when mass market property prices decline. In addition, another round of cooling measures may be just around the corner that could stipulate the minimum size limit and moderate the sales of mass market projects.