The document analyzes price trends in Singapore's private residential secondary market. It finds that price gaps between properties in the Core Central Region (CCR) and outside the CCR have been narrowing since the property market softened. The gap between CCR and Rest of Central Region prices fell from $610 per square foot in 2011 to $461 in 2014. Higher percentages of non-Singaporean buyers historically correlated with wider price gaps, but the gaps have narrowed as non-Singaporean buyer percentages declined. The author believes the gaps will continue shrinking as property prices fall further.
Original Description:
A report by local property consultancy firm HSR
Original Title
HSR Report - 3 Oct 2014 (Narrowing CCR vs OCR-RCR Spread)
The document analyzes price trends in Singapore's private residential secondary market. It finds that price gaps between properties in the Core Central Region (CCR) and outside the CCR have been narrowing since the property market softened. The gap between CCR and Rest of Central Region prices fell from $610 per square foot in 2011 to $461 in 2014. Higher percentages of non-Singaporean buyers historically correlated with wider price gaps, but the gaps have narrowed as non-Singaporean buyer percentages declined. The author believes the gaps will continue shrinking as property prices fall further.
The document analyzes price trends in Singapore's private residential secondary market. It finds that price gaps between properties in the Core Central Region (CCR) and outside the CCR have been narrowing since the property market softened. The gap between CCR and Rest of Central Region prices fell from $610 per square foot in 2011 to $461 in 2014. Higher percentages of non-Singaporean buyers historically correlated with wider price gaps, but the gaps have narrowed as non-Singaporean buyer percentages declined. The author believes the gaps will continue shrinking as property prices fall further.
03 Oct 2014 Narrowing price gaps between CCR and outside CCR
Highlights Recently, we analyzed the price trends of the private secondary residential market by the different market segments, namely Core Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR). We observed that the price gaps for secondary private residential market in CCR vs. RCR/OCR have been narrowing since the market softened. The price gap between CCR and RCR median prices reached a high of S$610 psf in 4Q2011. In 2Q2014, this gap fell to S$461 psf (Diagram 1). Similarly, between CCR and OCR median prices, the price gap has fallen from a high of S$870 psf to $712 psf for the same period (Diagram 2). The profile of buyers offers one plausible explanation. Historically, there is a high correlation between the percentage of non-Singaporean buyers and the price gaps between CCR vs. RCR/OCR (Diagram 3 and 4). In other words, the higher the percentage of non-Singaporean buyers, the higher the gap is. Since 2007, non- Singaporean buyers make up on average about 47% of yearly transactions in CCR, 34% in RCR and 31% in OCR. At the peak of the gap in 4Q2011, non-Singaporeans represented 61% of the total secondary transactions for non-landed properties in CCR compared to 35% in 1Q 2014. Will the spreads further narrow? The answer could have important implications on property investors. If investors believe in the scenario of shrinking gap, they would do well divesting their CCR properties and investing into RCR/OCR (ignoring impact of taxes/duties as this differs for different scenarios). The converse is true if investors believe the gap will widen. During the last Global Financial Crisis in 2007-2009, the price gap between CCR vs. RCR fell from a peak of S$643 psf in Q42007 to S$367 psf in Q12009. As property prices continue to fall, we believe this gap will continue to shrink by another $50- $100 psf.
1H2014 recorded a 42.9% fall in secondary transactions (2,179 units) compared to the same period last year (4,043 units). The slowdown in the residential property market prompted us to look at price trends of the secondary market by the different market segments, namely Core Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR) since 2007. Secondary market includes both sub sale and resale transactions. We have excluded Executive Condos and Enbloc deals from our analysis.
Shrinking price gaps between CCR and RCR/OCR. We observed that the price gaps for non-landed secondary residential market in CCR vs. RCR/OCR have been narrowing since the market softened. Since the 1 st round of cooling measures in 2009, the price gap between CCR and RCR median prices peaked in 4Q2011 at S$610 psf. In 2Q2014, this gap fell to S$461 psf, or approximately 24% decline. Similarly, between CCR and OCR median prices, the price gap has fallen from a high of S$870 psf in 4Q2011 to $712 psf in 2Q2014, a decline of 18%.
We analyzed the possible reasons including price growth. By 2Q2014, CCR experienced a significant price growth of 52.5% compared to 1Q2007 but this lags the price growth of 103.3% and 94.6% in RCR and OCR respectively.
Singapore Residential
Page 2 of 4 03 Oct 2014 Diagram 1
Source: URA, HSR Research
Diagram 2
Source: URA, HSR Research
Positive correlation between non-Singaporean buyers and price gaps. One possible explanation can be found in the profiles of the buyers. Looking at data from 2007 till 1Q2014, there is a high correlation between the percentage of non-Singaporean buyers and the price gaps between CCR vs. RCR/OCR. In other words, the higher the percentage of non-Singaporean buyers, the higher the gap is. Since 2007, non- Singaporean buyers make up on average about 47% of yearly transactions in the CCR, 34% in RCR and 31% in OCR. At the peak of the gap in 4Q2011, non-Singaporeans represented 61% of the total secondary transactions for non-landed properties in CCR compared to 35% in 1Q 2014.
Our regression analysis shows that theres a high correlation (R-square of 45%) between the % of non-Singaporean buyers in CCR and the price gap between CCR vs. RCR median prices. The correlation is slightly lower (R-square of 12%) when compared to OCR median prices.
2 0 1 4 S$ psf Price Gap between CCR and RCR Price Gap CCR Median Prices RCR Median Prices 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 1 Q
2 0 0 7 2 Q
2 0 0 7 3 Q
2 0 0 7 4 Q
2 0 0 7 1 Q
2 0 0 8 2 Q
2 0 0 8 3 Q
2 0 0 8 4 Q
2 0 0 8 1 Q
2 0 0 9 2 Q
2 0 0 9 3 Q
2 0 0 9 4 Q
2 0 0 9 1 Q
2 0 1 0 2 Q
2 0 1 0 3 Q
2 0 1 0 4 Q
2 0 1 0 1 Q
2 0 1 1 2 Q
2 0 1 1 3 Q
2 0 1 1 4 Q
2 0 1 1 1 Q
2 0 1 2 2 Q
2 0 1 2 3 Q
2 0 1 2 4 Q
2 0 1 2 1 Q
2 0 1 3 2 Q
2 0 1 3 3 Q
2 0 1 3 4 Q
2 0 1 3 1 Q
2 0 1 4 2 Q
2 0 1 4 S$ psf Price Gap between CCR and OCR Price Gap CCR Median Prices OCR Median Prices
Page 3 of 4 03 Oct 2014 Diagram 3
Source: URA, HSR Research
Diagram 4
Source: URA, HSR Research
Will the price gaps continue to narrow or reverse its trend and widen? The answer could have important implications on property investors, especially at times when loans are harder to come by. If investors believe in the scenario of a shrinking gap, they would do well divesting their CCR properties and investing into RCR/OCR. The converse is true if investors believe the gap will widen. We are ignoring the impact of taxes and duties as this differs based on different scenarios as well as profiles.
During the last Global Financial Crisis in 2007-2009, the price gap between CCR vs. RCR fell from a peak of S$643 psf in Q42007 to S$367 psf in Q12009. As property prices continue to fall, we believe this gap will continue to shrink by another $50-$100 psf.
R = 44.5% 20% 30% 40% 50% 60% 70% 80% 300 400 500 600 700 P e r c e n t a g e
o f
n o n - S i n g a p o r e a n
b u y e r s CCR vs RCR Price Gap S$ psf Non-Singaporean Buyers vs. price gap between CCR and RCR R = 11.6% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 500 600 700 800 900 1,000 P e r c e n t a g e
o f
n o n - S i n g a p o r e a n
b u y e r s CCR vs OCR Price Gap S$ psf Non-Singaporean Buyers vs. price gap between CCR and OCR
Page 4 of 4 03 Oct 2014 Table 1 Price Gap Possible scenarios Potential action Widens CCR prices fall slower than RCR/OCR prices Invest into CCR
Divest from RCR/OCR CCR prices increase faster than RCR/ OCR prices Narrows CCR prices fall faster than RCR/OCR price Divest from CCR
Invest into RCR/OCR CCR prices increase slower than RCR/OCR price Source: HSR Research
Commonly Used Abbreviations & Glossary
CCR Core Central Region
OCR Outside Central Region
PSF Per Square Feet
RCR Rest of Central Region
VS. Versus
HSR Research (research@hsr.com.sg)
Bernard Tong, Head of Operations (bernardtong@hsr.com.sg)
Wong Shanting, Research Analyst (wongshanting@hsr.com.sg)
This report is for information purposes and has been prepared by HSR Research based on sources believed to be reliable. Any opinions or estimates in this report are that of HSR Research as of this date and are subject to change without notice. The company and its directors and staff may have an interest in the properties mentioned. Issuance of the report by HSR Research is not an offer to sell or a solicitation to buy the properties covered in the report and HSR Research shall not be responsible for any consequential loss or damage, whether direct or indirect.