Unsold private residential housing stock is increasing ahead of the ramp-up of new launches by 2024
ABSD deadlines will be approaching in a few projects this year. Analysts are also of the opinion that the increase in inventory levels is unlikely cause concern for these projects. The fact that unsold inventory has increased since the Q4 2021 trough indicates a post-pandemic supply and demand equilibrium, which is a very good thing. The 17,262 unsold units of Q4-2023 are a lot lower than average private home unsold numbers in the last 40 quarterly periods between Q1 2015 and Q42023.
Q4 2023 represents a figure that is only 60 per cent higher than Q4 of 2014 and less than half as high as the 37 799 unsold unit peak in Q1 2019.
After the market bottomed, in Q2 2017, land developers rapidly replenished their bank. In 2018, and 2019, more residential projects were launched, and Q1 of 2019 was the peak for unsold home sales.
The unsold inventory then fell to “very small levels” which had not been reached in the past decade. It caused the market to become severely undersupplied. This led to a sharp increase in prices with strong demand.
URA’s non-landed home price index rose just 8.6 percent from Q2 2018 to Q1 2019 Since then prices have risen by a significant 33.7 per cent.
Using the average annual sales of developers between 2014 and 20, which was 8,850, we can estimate that the 17,262 unsold units correspond to just under 2 years of stock.
New home sales in 2023 declined by 9.6% year on year, to 6,421 new units. 7551 homes were also launched, which is a 66.8% year-on-year increase.
Tricia Songs, CBRE’s South-East Asia Research Director, revealed that the Government Land Sales Program (GLS), which is a government-run land sale programme, will sell 9,235 private homes in 2023. The sites on the confirmed list will be released for sale in accordance to schedule, irrespective of demand.
This has led to an increase in new private houses that are not being sold.
As a result, a large number of unsold residential units could be threatening to miss their important sales deadlines in the coming year.
The URA Realis data as at 12 Mar shows the following projects: 99-year Leasehold Cuscaden Reserve (District 10), with 180 units still available out of 192, 99-year Leasehold The Landmark (District 3), with 51 unsold units from 396 and 99-year Leasehold One Bernam (District 2) with 137 unsold out of 351.
The Business Times reports that the deadline for completing projects is five years. This year may be no different. There are fewer than five unsold units in the freehold Dalvey Haus as well as the freehold Leedon Green.
In residential projects with at least five units, developers are subjected to an Additional Purchaser’s Stamp Duties (ABSD) levy of 40 percent on the price of land. 35 percent of that amount is forgiven if 90 percent of the units are sold by the developer within five-years. In the absence of this, the ABSD portion must be paid with interest.
Sites acquired from July 2018 to December 2021 must pay ABSD at a rate of 25%, including a 5% non-remissable element. A 15 per cent ABSD rate applies to land acquired prior to July 2018.
The ABSD remission rate will depend upon how many units remain unsold. This was announced in Budget-2024. Lawrence Wong, the Finance Minister, said this would give housing developer more flexibility to sell units.
I’m taking the hit
As ABSD deadlines approaches, it’s normal for developers of projects to offer discounts from 10 to 15 percent in order to clear the remaining units.
Cuscaden Reserve has seen some marketing agencies offer huge discounts recently to entice buyers. A three bedroom unit of 1,163 square foot (sqft) has now been advertised at S$3.4million, down S$900,000. It was originally priced at S$4.3million. S$2.1m is the asking price for a 700sq ft 1 bedder. That’s a S$300k drop from S$2.4m.
The price per square foot is S$2,950, approximately 20 percent lower than the average S$3,600 per unit sold since the launch of the condo in September 2019.
Cuscaden Reserve has a goal to drive sales. And, since a GLS residential site near Orchard Boulevard was recently awarded, the developers might want to adjust their pricing in order to improve sales.
Song from CBRE stated that the Orchard Boulevard GLS was awarded to a UOL Group/Singapore Land Joint Venture in February at a price of S$428.3million. This is approximately S$1,617psf per plot. This is 32% lower than Cuscaden’s Reserve site which was sold for S$2,377psfppr in may 2018. The Orchard Boulevard Project is expected to sell for over S$3,000 psf in the future, according to market watchers.
The ABSD can be clawed back at a lower rate than 25 percent, depending when the site is acquired. If so, developers may choose to take the ABSD and sell the rest of the units later.
Cuscaden reserves, for example is built upon land acquired by May 2018; therefore, it is subject to ABSD rates of 15 percent of the land acquisition cost, which is approximately S$61.5 millions.
As a general rule agents are prohibited from offering discounts or incentives for the sole purpose of closing a deal. These discounts come from the developers who, according to him, change their pricing policies in response market conditions.
Singapore’s unsold new private housing inventory increased by 20% in the last 2 years. It is expected to increase further as more developments come to market.
This could spell bad news to some residential developments that face a sales deadline of this year or next. Either they must sell off all the unsold units by then or pay huge stamp duties amounting to millions of dollar.
According to latest quarterly data from the Urban Redevelopment Authority, unsold inventory comprising unsold apartments in completed projects and uncompleted ones grew by 20,4 per cent from 14,333 to 17,262 units during Q4 of 2023.
Wong Xian Yang of Cushman & Wakefield, the head of research, explained that this is mainly down to a rapid rise in new launches “coinciding”, thanks to numerous rounds of cooling and high financing costs.
Projects are not limited to the top districts on the island. Yet, buyers prefer to purchase units they want, instead of those on sale. Analysts expect that private housing inventory will increase further but still be lower than the previous peak.
The quantity of unsold units in Q4-2024 will depend on planned launches, sales and the level of inventory. Huttons’ data analytics predicts that there will be 18,000-19,000 unsold GLS units by the end of 2024. This is still below the peak number of almost 38,000 unsold units during Q1 2019.
The unsold inventory is not expected to exceed 22,000 items, since the fundamental demand for buying remains robust, and 2024 will be a year without a financial recession.
