Feb 12, 2014
Average resale
prices of private properties across Singapore – excluding landed homes – fell
by 0.98 percent month-on-month during January contrary to news reports earlier
this week which suggested average prices in the city-state had increased by 2.3
percent over the same period.
As with many media
reports the story behind the headline is actually somewhat different.
According to
official Singapore government data analysed by PropertyGuru today, average per
sqft prices of private resale condos did increase last month – but only in four
of the city-state’s six regions. Overall the market showed a 0.98 percent
month-on month decline in average resale prices. Transaction volumes also
declined over the same period, from 303 during December 2013 to 229 last month.
Dragging the market
average down was the Core Central Region (CCR) where average prices showed a
dramatic double-digit 13.75 percent month-on-month decline. The other area to
show a decline was the North East where average prices were down 5.44 percent.
Increases were recorded in the Central (7.00 percent), West (5.59 percent),
East (5.27 percent) and North (3.34 percent) regions.
The fact that four of the six regions rose, yet two declined substantially enough to drag the overall average into negative territory, underlines the importance that Singapore property buyers and investors get detailed and specific information about their intended purchase location and not rely on ‘whole market’ averages as a guide for market performance.
Just 24 transactions were recorded in the CCR last month compared with 128 in the same month last year. The CCR region encompasses Districts 9, 10 and 11, as well as downtown core and the island of Sentosa. Average prices for resale private property were recorded at S$1,805 psf in January 2014.
The GuruView:
To fully understand
this apparent contradiction between the facts and the earlier headlines you
need to recognize a few things about how a general property market index works.
Sales volumes in
the secondary condominium market have dropped dramatically over the last 12
months, and while this gives an indication of where prices are likely to be
heading in the future the most important point to note is where the current
resale transactions are happening. This affects the general market index, which
is used as a proxy for prices rising or falling. The problem is that a change
in the types and localities of the properties being measured changes the index
– and this may or may not reflect actual price changes.
Consider the following scenario.
In the outer regions of Singapore the prices per sqft are low, and in the core areas they are much higher. Therefore, if sales volumes have fallen, as a proportion of the total sales, in the Outside Central Region (OCR) and, at the same time, have proportionally increased in the Central Region (CR), then the overall market prices per sqft – as measured by the index - will have increased.
Note that this can
happen despite the fact that resale condominiums in any given region may, in
fact, have gone down in price. Put simply, an ‘apples with apples’ valuation is
the only way to get an accurate picture of exactly what is happening to prices.
Similarly, the
reverse could also be true. It’s entirely possible that the above scenario
hasn’t happened – and rather prices have indeed been rising. The point is that
without the ‘apples with apples’ analysis no intelligent conclusion can be made
from looking simply at any aggregate index data. From the data provided we can
only conclude that prices may have gone up, unless of course they went down –
which is not helpful.
A simple way to see
how this may happen is the following scenario.
Developers in the
OCR may have discounted hard in the primary new homes market, meaning that
potential buyers will shift their focus from the secondary market and into the
new homes sector.
However, new condo
supply is more limited in the CR and therefore there is less capacity for
people to switch between sectors. So, proportionately more demand remains in
the secondary market. That is, you get more high per sqft priced units and
fewer low priced psf units being measured by the index, and so the index will
rise regardless of whether the actual units themselves rose or fell in price.
This is a compositional effect that affects indexes – and so caution needs to
be exercised when drawing conclusions from them, particularly over short time
periods.
The key point is
that very little can be understood from just the headline data on the secondary
market. Potential property buyers and investors need to do their research,
including talking to the agents on the ground, to see how prices are actually
performing in the areas that interested them.
We want to know
your experiences in the private resale market, whether you’re buying, selling
or an agent. Do you agree that transacted prices are generally falling, or are
sellers holding out for higher prices? Let us know by emailing the editorial
team.
Info
courtesy - PropertyGuru
