With prices of landed homes falling faster than their non-landed counterparts, should prospective buyers take advantage of the slow market to secure their dream home? We investigate.
By Chang Hui Chew
Landed property. To many Singaporeans, this particular property class is the most aspirational of them all, a sign that one has “made it”, so to speak, on our land-scarce island. The luxury of having a plot of land for a backyard of one’s own, a convenient car porch and more space than can be found in regular condo apartments or HDB flats, is a dream many Singaporeans have in common. According to Singstat’s 2014 data, only 5.8 percent out of all resident households in Singapore live in this particular property class.
In general, landed property is divided by tenure, title and housing type. Tenures are generally freehold, which means the owner owns the title in perpetuity, or leasehold, where the owner has rights over the property during the period of the lease. In Singapore, leasehold properties have a few different tenure periods, such as 999-year (which might as well be freehold), and shorter leases of 105 and 99 years. Titles are either land titles, where the owner owns the land outright, or strata titles, where the owner essentially owns the ‘air space’ of the property. Landed property also consists of three different housing types – detached houses, where a single dwelling unit occupies a piece of land; semi-detached houses, where two dwelling units share the land, often with a shared wall between the two units, and terrace houses, where multiple dwelling units are on the same plot of land.
Much like the other residential property classes in Singapore, landed property has taken a huge hit from the cooling measures. The Total Debt Servicing Ratio (TDSR), which restricts what financial institutions and banks can disburse in loans to individuals to 60 percent of gross monthly income, have reduced the amount of financing for this particular property class, where quantums are high. TDSR factors all kinds of debt into an individual’s financing eligibility, from credit card balances to car loans. Combined with a shorter loan tenure for those above 30 years of age, affordability for landed housing has decreased even further.
Prices and volumes, titles and tenures
The effect of these cooling measures has been a plummet in transaction volumes for landed property (refer to Figure 1). In 2012, 3,090 caveats were lodged for landed property, which fell 55 percent to 1,391 caveats the year after, then a 30.6 percent drop to 965 caveats in 2014. As of end-July this year, 645 caveats have been lodged for landed property.
While overall volumes have fallen, shorter-term leasehold properties have remained at a rather consistent 20 to 25 percent of transaction volume during the period of analysis. When it comes to landed property, those with the deep enough pockets to purchase it will still likely hold out for freehold tenures, with perpetual ownership seen as a status symbol, not to mention appealing to desires for legacy planning and inheritance for one’s offspring. Cooling measures have also been effective in bringing down prices for landed housing, albeit at a much slower rate than transactions. URA’s property price index (refer to Figure 2) shows landed housing hitting its peak in Q3 2013, before coming down. Since then, landed housing prices have declined 8.1 percent, a slightly higher rate than non-landed housing at 6.1 percent.
In this segment, shorter term leasehold properties seem to be the most susceptible to market conditions (refer to Figure 3). Freehold properties saw median psf prices dip five percent from their peak in Q3 2013 during the period of analysis, while 99-year leasehold properties saw median PSF prices fall 12.7 percent from their peak in Q1 2013 during the period of analysis. Developers of leasehold cluster housing developments are also facing pressure to lower prices to clear stock, or they may end up paying hefty qualifying charges. Conversely, it seems the common perception is true: freehold maintains its value even during a market downturn.
One should note, however, that lower PSF values for leasehold landed properties do not necessarily imply that they are more affordable than freehold properties. If the property is strata-titled, the psf unit price is based on the built up area (i.e., the physical square footage of the constructed house). However, land titles have their psf price calculated based on land area. Several leasehold strata-titled housing developments have several floors of built up area, going down to basements and up to attics. As such, while psf prices are lower, the overall quantums could be comparable to or even higher than freehold land titles, as it accounts for more square footage.
Several cluster housing projects provide condominium style amenities, such as fitness rooms and swimming pools, to justify these higher quantums. It is also increasingly common to see developers providing lifts in landed property to cater for more floors, and to make the homes more convenient for the elderly. As attractive a lifestyle as this may seem, potential owners also need to remember that there are monthly maintenance costs for these amenities, just like at any condominium.
The road ahead?
While prices for landed housing have come down, overall quantums are still high. The median transacted price for all landed property in Q2 of this year, according to caveats lodged with the URA, was $3,010,000, which is about 30 times 2014’s reported median annual household income.* Landed property is primarily a resale market, and current owners of landed property have strong holding power, and are unlikely to let go of their property for a price they deem too low. With supply constraints and price inflexibility, it is unlikely that prices in the secondary market for landed property will come down. Those who wish to enter this property class at lower prices will need to look to cluster housing developments. However, given the prices these developers have acquired the land for, there isn’t much room for them to reduce prices, either.
Search queries are a leading indicator of market movement, as it indicates demand (see Figure 4). Search queries for landed property in the East Coast area over the last six quarters have trended upwards, and generally leads all search queries for landed property. Searches for landed property in the Thomson-Serangoon area are also highly popular on PropertyGuru. Both the East Coast and Thomson-Serangoon areas are established landed districts with a wide variety of nearby amenities, including grocery shopping, reputable schools, and popular food enclaves like Siglap, Upper Thomson and Chomp Chomp.
One of the likely drivers of demand is the upcoming Thomson-East Coast MRT line in these districts, which is likely to lead to a rise in capital values in these areas. Savvy buyers are likely looking at these properties to move into before the MRT line completes construction and property prices rise even further.
There is, of course, one more option available to those who wish to purchase landed property, but at more affordable prices. They can look across the Causeway, where landed property can be bought at almost the same prices as HDB flats. Massive developments in nearby Johor deliver a lifestyle not available in Singapore, such as living amidst a golf course, or having a private marina of one’s own. The commute to Singapore for work or study, however, could take a couple of hours each way,
and might be a difficult trade off to make. Therefore, these properties might be more feasible for those looking for a certain quality of life in retirement. Interested buyers may look to PropertyGuru’s Malaysian Property Show over the weekend of 12 and 13 September 2015, or at our overseas listings.
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