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Exploring the option of shorter tenures?

Exploring the option of shorter tenures?

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The jury is still out on the impact of recent tweaks to the seller’s stamp duty (SSD) and the total debt servicing ratio (TDSR) framework on residential home prices and volumes. What we do know is that Singapore’s private home prices have headed south for 13 consecutive quarters since peaking in Q3 2013, declining by about 11 per cent, the cumulative effect of a series of cooling measures introduced since September 2009, and more recently, the looming prospect of rising interest rates and a slowing economy. This is a relatively milder correction compared to the sharper 25 per cent fall over four quarters during the sub-prime crisis in Q2 2008.

So far, market watchers widely agree that the recent announcement has lifted sentiment going by the apparent strong showing at showflats. However, buyers will still need time to assess exactly how the changes might affect their decision to purchase or sell. Upcoming executive condo launches include Hundred Palms Residences EC, Yio Chu Kang EC, Inz Residence EC, Anchorvale Lane EC,  while existing ones include The Terrace EC, Brownstone EC, The Vales EC, Parc Life  EC , Sol Acres EC, The Visionaire, Bellewoods EC, Signature At Yishun , The Criterion EC and Northwave. Hundred Palms Residences details and Hundred Palms EC show flat will be available shortly.

The fact remains that the majority of buyers are subject to the TDSR and that the SSD applies, albeit the holding period has been shortened and the rate reduced. Prices of mass market homes located in the Outside Central Region (OCR) are still high, mainly driven by too many developers chasing after a limited number of development sites. At the end of the day, affordability remains a key concern of home buyers.

Historically, the rationale for providing 99-year leasehold homes is to offer a more affordable housing option compared to freehold homes. Not surprisingly, there is always a price gap between the two classes of properties.

Based on caveats lodged for new non-landed private homes sold in OCR for the whole year of 2016, the median price quantum for a freehold unit was S$1.1 million while a 99-year leasehold home was priced at S$973,000, a difference of 13 per cent. Comparing the unit rate on strata area, the difference was 18 per cent between the price of S$1,476 psf for freehold and S$1,251 psf for 99-year leasehold homes.

Developers responded to higher costs as well as loan curbs with quantum play. For the period 2013-16, the median price per unit of 99-year leasehold non-landed private homes has remained below S$1 million. They adopted the strategy of rejigging unit sizes to keep prices of mass market homes below this affordability threshold. The bulk of these units ranged from 550 sq ft to 750 sq ft in size.

There is, however, a limit to how much smaller the units can get and still remain a decent liveable space. Perhaps it is time to consider another strategy to keep homes affordable.

In November 2012, URA sold a residential land parcel at Jalan Jurong Kechil with a 60-year leasehold tenure. The residential project developed onsite is called The Hillford. Comparing the prices of residential land sold around the same time period, the site cost some 40 per cent less than the freehold site of The Creek @ Bukit (Toh Tuck Road) and over 20 per cent less than the 99-year leasehold site of The Skywoods (Dairy Farm Road). The lower land price of The Hillford reflected the adjustment for the shorter tenure.

Furthermore, when the three projects were launched for sale from late 2013 onwards, the median price of The Hillford was 31 per cent below The Creek @ Bukit and 12 per cent below The Skywoods. With sizes ranging from 398 sq ft to 657 sq ft, all 281 residential units of The Hillford were sold in a few days. The price range of S$388,000 to S$770,000 was perceived as very affordable due to its “Upper Bukit Timah” location despite the small unit sizes.
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