Outlook for secondary market worsens

Guess what else is giving the secondary market trouble aside from buyers’ growing wariness.

CIMB said:

While new private-home sales touched a new high of 19.2k units in 2011, resale volumes fell 21% qoq in 4Q11 (2.4k units) and 29% yoy in 2011 (13.5k units). Median prices also dipped 2% qoq, going by URA estimates. We believe this trend reflects buyers’ growing wariness.

The secondary market has become a buyers’ market across the board as falling resale prices/volumes extend to the mass market. Agents note buyers’ increasing preference for new homes over resale units.

Worsening the outlook for the secondary market is another upgrade of 2012 physical-completion estimates by the URA, to 13.3k units from 12k in 3Q11. Residential rents have already flattened, up 0.4% qoq in 4Q11 vs. 0.8% in 3Q11.

Inventory remained high with around 40k units still unsold and a pipeline supply of 77k units still the highest since 1999. Not surprisingly, vacancy rates rose to 6% in 4Q11 from 5% in 4Q10.

Median COVs declined 10-16% qoq across the categories (3-5 rooms), suggesting that the government’s HDB policies (raising supply and income ceiling) are starting to work. Lower COVs for HDB resales could have a negative impact on demand for private units.