With so much attention on Punggol Northshore, we take a Guru View at the property price trends in these Northeastern estates.
By Chang Hui Chew
In previous issues, we’ve looked at property prices and trends in mature estates. More established and located in close proximity to the city, property prices in those areas are understandably high. When it comes to the younger estates in Singapore however, we need to look at what investors commonly term the “growth story,” the plans for an area’s development that is likely to bring about a rise in property prices in the future.
Looking to the past
Development for the larger Punggol area (consisting of Sengkang, Punggol, and parts of Ang Mo Kio) began in 1998. In 2007, during the National Day Rally, Prime Minister Lee Hsien Loong announced plans for Punggol 21 Plus, focusing on providing a lush green environment amidst the northeastern coast of Singapore. Unlike the highly developed estates in the city center and city fringes, these newer suburban towns were not built in a rush for a newly independent populace with critical housing shortages, but rather, took a considered approach to the future of living in a city state with a very much expanded populace. As such, in the most recent National Day Rally, PM Lee announced the plans for Punggol Northshore, the latest iteration in the Masterplan for Punggol.
Punggol Northshore, which is discussed in greater detail elsewhere in this issue, will focus on educational and industrial development. The Masterplan calls for a Creative Cluster, an area for new technologies and development. Furthermore, it was also recently announced that Singapore Institute of Technology (SIT) offsite campuses across the various Polytechnics will be centralized in a single campus, which will be built as part of the Learning Corridor in the area as well. With an emphasis on living in a natural environment, Punggol is also envisioned as an eco-town, with plans for green spaces and a rustic park on Coney Island.
The HDB estates of Punggol and Sengkang are developing in a frenzy of construction to bring the vision of this master plan to life, building all the necessary infrastructure, education, and amenities required for modern living. With the majority of Build to Order (BTO) flats exercises centered around non-mature estates, Punggol and Sengkang also have a large population of young families and newlyweds, adding to the vitality of the area. Between the two estates, Sengkang is older and more established, built as urbanization spread out from the older estates of Hougang and Ang Mo Kio, while Punggol was developed a little more recently, to provide increased housing as Singapore’s population surged.
With such lofty plans for the future, the growth story of this area is definitely assured. What then does this mean for property values in the area?
Sales in the public sphere
Figure 1 shows the transaction volumes and median price per square foot prices for HDB resale flats in Sengkang and Punggol over the last 14 quarters. In general, Sengkang sees a higher number of transactions, averaging 276 transactions per quarter, to Punggol’s 131, because the estate is relatively older. As such, a larger number of flats have already hit their Minimum Occupancy Period, and homeowners might have chosen to upgrade. In contrast, Punggol, younger and less built up, has yet to see that much interest in upgrading, or even that many flats hit their five years since the collection of keys.
Meanwhile, the pricing story is slightly different. In general, the median price per square foot for Punggol is $458 for the period of analysis, while Sengkang’s stands at $438. Do note that the period of analysis falls before PM Lee’s announcement of Punggol Northshore, and transaction activities hoping to capitalize on that announcement will likely be apparent only after Q4 2015’s figures are computed. While Punggol’s per square foot prices were trending above Sengkang’s at the start of the period of analysis, prices for both estates have converged in the past four quarters as they slid downwards. Both estates are still priced above the overall median HDB resale price per square foot of $413 over the period of analysis.
However, these two estates are less price resilient than the overall HDB resale market. Since the implementation of cooling measures, the HDB resale price index slowed down after Q3 2012 before it went negative in Q3 2013. Both Sengkang and Punggol saw their prices slow after the overall market did, and their rate of decline has trended below the overall market’s (see Figure 2). While overall prices have slowed their freefall by the second quarter of this year, these two non-mature estates still saw sharper declines over the same period. While the HDB resale price index fell about 10 percent since its peak in Q2 2013, Punggol and Sengkang fell by about 15 percent and 13 percent from their respective peaks suggesting a greater degree of volatility. This might not necessarily weigh against these estates’ favour, since it suggests that savvy buyers who wish to be part of the area’s growth story can come in while prices are still low to reap better returns in the future.
HDB rentals in the Northeast
Average monthly rentals for Punggol and Sengkang have been on a downward trajectory for the past nine quarters, showing losses in line with the overall HDB rental market (see Figure 3). However, Sengkang, slightly older, more established, and with larger Executive- type flats in the rental pool, commands higher rentals than Punggol, despite the falling market. Over the period of analysis, on average, Sengkang commanded a premium of $117 per month for HDB rentals. At the end of Q2 of this year, the average monthly rent for a HDB flat is $2150 for a flat in Punggol and $2283 for a flat in Sengkang.
While HDB does not publish subletting volume per estate, what we do see overall, is that even as rental prices soften, the number of subletting approvals has moved up over the period of analysis. This is likely due to a number of macro factors, such as the “localization” of expatriate packages, and a three-year time bar for Permanent Resident households before they can purchase resale flats, which have driven demand into the HDB rental market. Expats who enjoy living in greener environments but are priced out of areas like Marine Parade and Bukit Timah are also likelier to find budget friendlier HDB rentals in these newer estates.
Buying in the private realm
Aside from building BTO flats, infrastructure and public amenities in the northeastern region to bring the vision of Punggol’s masterplan to life, the government has also brought in private developers through land sales to increase the housing stock. From the start of 2011 to date, the state has sold 11 plots of land for private condominium development in the area, totaling just under 200,000 square meters of land.
Punggol, with the majority of land sales earmarked for executive condominiums, did not see significant transaction action since Q2 2013, with less than 20 private condominium transactions each quarter (see Figure 4). Prior to that however, Punggol saw healthy private condominium sales for A Treasure Trove (Sim Lian) and Flo Residences (a joint venture between Capital Development and ZACD Investments).
Figure 4 also shows that despite a slower market due to cooling measures, developers who price competitively will still achieve sales. For instance, the spike of almost 500 transactions in a quarter during Q1 2014 was due to Rivertrees Residences (Watervine Homes) and Riverbank @ Fernvale (UOL Development), which were around $1000 per square foot at launch. On average, private condominiums saw about an average of 215 transactions per quarter in Sengkang. When Q3 2015 figures come in, we are likely to see this figure increase significantly, with the inclusion of budget friendly High Park Residences (CEL Development), which sold over 1,100 units in its month of launch at a median price of $989 per square foot.
The cooling measures have indeed taken their toll on private condominium prices across the island. The latest Q2 2015 figures for Urban Redevelopment Authority’s (URA) Non-landed private residential property price Index for the Outside of Central Region (OCR) have fallen consecutively since Q4 2013, and currently stands at 162.0, a 5.2 percent fall from its previous high of 170.9 in Q3 2013. In Sengkang, while prices of private residential condominiums has fluctuated quarter to quarter, on average, it has bumped upwards by about 1.9%. This suggests that Sengkang is a little more resilient compared to the rest of the suburban areas in the OCR.
Renting privately
Sengkang’s resilience however, does not extend to the rental market. Since its peak in Q4 2012, median monthly rents for private condominiums in Sengkang have fallen from $3.21 per square foot to $2.74 per square foot (refer to Figure 5). While this is still higher than the median rent in the overall OCR, median rents across the suburban areas of SIngapor have actually maintained around $2.2 per square foot per month, despite cooling measures. Meanwhile, Sengkang’s median rents have fallen 14% from its peak during the period of analysis. This is likely due to rental demand shifting to HDB rentals for those whose budgets have fallen, or out of the suburban areas into the city fringes for those looking to capitalize on currently lower rents there.
However, those looking to invest in Sengkang can take heart. While rental prices are falling, they have maintained a premium over the overall OCR during the period of analysis. At today’s rates, median gross rental yield stands at about 3.07 per cent, which is rather good in the yield-compressed Singapore market. With the northeast’s growth story behind it, it is likely that rents would rise again and yields improve in the near future as more infrastructure and businesses come into the picture.
Punggol however, does not have sufficient private residential rental transactions to conduct analysis. This is likely because most of Punggol’s private condominium stock has yet to complete construction and hit the rental market yet.
Hybrid driver
While Sengkang has a larger proportion of private residential condos, Punggol sees a higher concentration of executive condominiums (EC). Out of the 10 executive condo sites in the area sold since 2011, Punggol has 6. However, no site in Punggol has been released for ECs since 2013. The last 2 sites were successfully bid for in July 2013, with The Amore (Keong Hong Construction and Master Contract Services) and The Terrace (Peak Square) being built there currently.
Prices for ECs in Sengkang and Punggol, while seeing some dips due to the implementation of cooling measures, have been on an upward trajectory. Over the period of analysis, median prices for ECs in Punggol and Sengkang have increased by 13 percent and 11 percent respectively (refer to Figure 6). The price appreciation over time, despite government measures to bring down prices, is likely to be a reflection of the potential in the area, and developers pricing this into the selling price.
The volume side of business, however, paints a more depressing picture for ECs. Over the period of analysis, only 5 quarters had more than 200 units move within the quarter for either estate. On average, across the island, just under 800 EC units are moved each month. ECs, more than private condominiums, are a very price sensitive class and those priced aggressively are likelier to move. For instance, The Topiary (Kheng Leong Co and Qingjian Realty) moved over 300 units in Q1 2013 at a median of $737 per square foot.
Poor volume movement in the Northeast region for ECs is likely due to a number of reasons. For one, it is not just price per square foot which needs to be low. Overall quantums needs to be low as well, suggesting that units might need to be sized smaller. Of the over 3,700 EC units moved over the period of analysis, over 2,200, or 60 percent, fell within the $750,000 to $999,999 range. The next most popular price range was the $500,000 to $749,999 range, with over 700 units (19 percent).
Dollars and sense
These lower quantums are the sweet spot for purchasers due to affordability issues. While EC buyers get to enjoy certain grants from the state, they also fall under HDB rules for loan curbs, and are therefore subject to mortgage servicing caps of 30 percent of income. In comparison, Total Debt Servicing Ratio (TDSR), used for calculating mortgage limits for private condos, is 60 percent of income. This suggests that for the financially prudent who do not have high outstanding debts to bring down their loan limits, they might be able to afford a private condo, but not an EC, simply because what they are allowed to borrow is different. EC developers therefore have to price their offerings low enough to fall within conventional mortgage caps, and below the EC income ceiling. For most HDB upgraders though, ECs, simply due to their lower quantums, are generally more affordable, and an easy choice to make.
The surfeit of EC projects in this area is also an issue of concern. With such a huge supply in the market, a large number of stock has yet to be absorbed. This is likely the reason why the state has tapered down the sale of land plots in this area, with only one EC site in Sengkang being released in the last 12 months. Developers are likely going to need to sweeten their offerings to clear existing supply. Unlike private condominiums, EC developers cannot hope for a tweaking of cooling measures, such lowering Additional Buyers Stamp Duty (ABSD) to stimulate foreigner and investor interest. This is because ECs fall under HDB rules and cannot be sold to foreigners, or legally rented out for yield until MOP is completed.
Private condominiums priced aggressively, will also continue to do well. What developers have to do, however, is to find the balance between low enough quantums to make them affordable for buyers, and shrinking them to a degree that the quality of lifestyle becomes compromised, and hence, unattractive. With the growth story of the Punggol and Sengkang area backed by huge state investment, and nearby developments like Seletar Aerospace Hub, there is a decent tenant pool to be had in the future for investors hoping for both rental yield and capital appreciation.
For the rental market, private condominiums will compete to some degree, with HDB flats. With larger sizes and lower prices, flats are an attractive option for tenants. A key consideration for real estate investors hence, is the nature of the product they are buying. Developers not only need to price aggressively to attract investor dollars, but will need to churn out interesting lifestyle products that can be used to attract tenants subsequently. Another key consideration for investors is accessibility. Between a lower priced HDB flat within walking distance to a MRT station and a more expensive condo that requires some traveling, tenants are likely to choose the HDB flat over the condo unit.
In sum
The growth story of the greater Punggol area is indeed an attractive proposition. The emphasis on greenery, parks and the natural environment, educational institutes of every level, transportation links like MRTs and LRTs and new suburban shopping malls, will provide residents with greater conveniences and a beautiful environment to live in. Price points of both ECs and private condominiums are depressed right now with the residential market on a down cycle, suggesting that it might be a good time for buyers to enter.
The focus of an area for creative technology, a fourth tertiary institution campus, proximity to industrial hubs such as Seletar Aerospace Hub and Pasir Ris Wafer Fabrication Park make Sengkang and Punngol an attractive option for investors as well. However, investors need to be savvy and do their due diligence to examine each of the offerings on the market, to make a prudent choice that will give them decent yields in the medium term and strong capital appreciation in the future.
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