Why it's high noon for bargain home hunting

Home prices posted the biggest drop since 4Q13.

The year 2016 will be a good year for snapping cheap homes as prices are expected to continue its downtrend, says Cushman & Wakerfield.

The latest flash estimates by the URA show that Singapore residential market remains in correction despite of recent improved take-ups at new launches. The market is finally feeling the brunt of the economic slowdown as well as the downward pressure from the supply spike in 2015-2017.

The decline in 3Q is also more pronounced across all market segments. The overall decline of 1.5% is the steepest drop since the second quarter of 2009, where prices declined by 4.7% Q-o-Q.

Cushman & Wakefield Research Director Christine Li notes that the steeper drop in the CCR segment is a reflection of the recent changes adopted by URA to include the net prices for delicensed units sold. This, she said, has indeed affected the computation of the CCR prices, which indicated a decline of 1.8% Q-o-Q compared to an increase of 0.3% in 2Q2016. This is also the biggest decline since 4Q2013.

The analyst meanwhile, said that demand for luxury segment is still languishing in the face of a slowdown in the global economy and weak leasing market.

"CCR buyers are coming back to the market for only selected deals where developers offer attractive discounts," she explained.

Despite the limited supply of the landed property, prices of landed property saw a steeper drop of 2.2% Q-o-Q compared to 1.5% drop in 2Q2016.

According to Li, the anticipated slower GDP growth coupled with stringent loan criteria for large quantum purchase does not bode well for landed property.

Moving forward, Li said that the subdued rental market coupled with slower population growth could mean negative rental income. Existing investors/home owners with weaker holding power could therefore let go of their properties at a lower price.

Li expects this trend will continue to weigh on the market over the next few quarters, though the decline could be slow as interest cost stays low. Nevertheless, Li said that this presents a good opportunity for buyers in such a climate as those who have stayed on the sidelines are ready to come into the market.

"This is partly supported by the rising household income (on average 5% per year from 2012-2015) and relatively low unemployment rate (currently stays at 2.1%)," she said.

Li added that there is still underlying demand for the residential properties. This could come from investors and home owners who have made capital gains on their previous purchases and are now looking to re-invest their capital gains.

"There will be more market activities particularly in the resale segment this year due to more residential units bought with Seller’s Stamp Duty (SSD) meeting the four-year deadline to be eligible for sale without any penalty (the higher SSD was introduced in January 2011). This could incentivise those who have broken even or even made some capital gains to offload the units in the market," she said.