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Residual demand remains low with slight improvement of late
SINGAPORE, 15 August 2014 – In the month of July alone, buying sentiments have stayed relatively constant albeit at a low level compared to the monthly average so far in 2014. 484 developer sales were recorded in July, which is a 0.4 per cent m-o-m increase from June 2014, although at a softer level compared to 715 units so far this year.
Four new projects were released in July – Bijou, City Gate, Robin Residences and The Citron Residences, with the large majority located in the Rest of Central Region (RCR). City fringe development Bijou launched all 120 units and managed to sell 11 units at a median price of $1,969 psf, while City Gate along Beach Road placed 260 out of the 311 units onto the market and moved 89 units at a median price of $1,809 psf. The third city fringe project is The Citron Residences with 39 units released within its 54-unit development, selling 23 units at a median price of $1,585 psf. The final project launched in July was Robin Residences, located within the Core Central Region (CCR). It released 20 units for sale and secured buyers for 11 of its units.
Thirteen months after Total Debt Servicing Ratio (TDSR) was introduced, the level of developer sales has halved compared to the same period before the policy implementation. A total of 779 units have been sold on average per month since the implementation of TDSR, a steep drop from the 1,692 units witnessed for the same period before. That said, market sentiments have stablised albeit at a low sales volume.
Residual demand, defined as the absorption of unsold housing units after stripping off demand from new launch or re-launches, has remained relatively stable with marginal improvement particularly in recent months (see Figure 2: Residual Demand). Looking at the sales of previously launched units, the effect of TDSR has surely kept conservative buyers on the sidelines.
In the period before the policy implementation, residual demand achieved a monthly average of 532 units. Post-TDSR, this volume has fallen to just 187 units. Dr Chua Yang Liang, Head of Research for South East Asia, said: "These buyers are not immediately affected by the marketing efforts associated with new project launches nor re-launches, and they reflect what can be described as the 'underlying conservative' residual demand for housing under the new financing framework."
He added: "This demand has been improving steadily in the last three months, from 183 units in April 2014 to 245 units in July, suggesting that these conservative buyers have been moving in from the sidelines, absorbing these previously unsold stocks in the market as the 'price is right'." He reckons that as long as developers continue with their marketing efforts, such residual demand is likely to return to the market and may continue to grow albeit slowly, as they are very price sensitive.
Dr Chua Yang Liang
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