With all the talk about the future of new launches rising in price, many are wondering why is this happening so suddenly, and if there are ways to determine whether this is the ongoing trend from now on. Here is where I step in to break down the factors that contributed to the rise and conduct trend analysis with the case studies I have at hand.
What determines the launch price? Well, it comes to a launch price, there are a few factors that the developers would consider:
To break it down further, land cost refers to the price where the land parcel was bought, which determines the psf ppr of a development. This will also form the basis of consideration when the developer pegs the unit at a certain psf. Next, the construction costs along the way will also determine the costs spent to completely furnish the development. Then, there is also marketing costs taken to promote the unit, along with the unit promotions to boost sales. Finally, profit margins set by the developers will also determine how high they will have to go to secure a certain level of profitability.
This, combined together, will formulate into the launch price that you will eventually see. This would mean that if any one of the contributing factors were to see a spike in price, the launch price will naturally increase as well. Let’s take a closer look at some of these factors.
#1 Land Cost
When it comes to land cost, the transaction price of the land parcel pretty much sets the stage. From some of the recently transacted land parcels, we see a clear direction of prices rising steeply - take a look at Tanah Merah Kechil, which was recently awarded at $930 psf ppr. Or at Ang Mo Kio Avenue 1 that was awarded this year at $1,180 psf ppr
Even when we look at ECs that have their affordable price as their selling point, the recent EC sites were closing at a record high of $400m, which translates to a $603 psf ppr.
Clearly, land cost is a contribution to the rise in new launch prices - and not set to decrease anytime soon.
#2 Construction Cost
For the past few years, we notice that construction costs have been increasing steadily over the years. Based on further research, this has indeed been the case, with 2020 seeing a steep increase of 17% in just one year.
Therefore, a rising land cost and construction cost seem to be a strong indicator that prices are likely to increase, leading to higher future launch prices.
But, what about the supply and demand within the market?
Further analysis: Supply and Demand review
To understand how supply and demand can affect the new launch prices, we first need to look at whether we are in an over-supply or under-supply situation.
If we are in an over-supply situation, there is more supply than demand. With more supply in the market, the prices will have to become less expensive to attract the smaller pool of buyers to purchase their units. Hence, the price will decrease.
Conversely, if there is an under-supply situation, there is more demand than supply. This means that there are more people wanting to buy units than the rate where new launches are being pushed out, forcing the prices to go up with the larger pool of buyers. Hence, the prices will increase.
You might have already expected this, but there has been a depleting supply of unsold units over the past few quarters. Existing units in the market are being taken up at an alarming rate, and we are very close to the last low we have experienced in many years:
At 3Q 2021, we have only 17,140 existing units across Singapore that are unsold. This is much lower than 3Q 2020, which stood at 26,483 unsold units.
For the past 2 quarters, the take up has also exceeded 100% as well. We see the private home launches peaking last year but slowly come to a gradual decrease in supply. And yet, demand has picked up since 1Q 2021, causing the demand to greatly exceed supply. This means that the number of units being released is much lesser than the rate where units are being bought by interested home buyers and investors.
This has also spurred the increase in land prices across the upcoming land parcels, further causing the land cost to increase. Future property prices will therefore see the effects of these factors and launch at a higher price too.
Hence, wouldn’t it make the most sense to upgrade now and enjoy the first-mover advantage?
Biggest clue: Recent Government Land Sales
A clear indicator would be the recent government land sales (GLS).
We previously saw the GLS for OneNorth Eden condominium transacting at a land rate of $1,001 psf ppr. This was back in September of 2019. Fast forward to 2021 this year, we see the land parcels in the vicinity sealing the deal at $1,246 psf ppr and $1,210 psf ppr. This is a whopping 24.5% and 20.9% increase in cost, and this is just the land cost alone!
We take another look at the OCR land price, which almost doubled in two years. The Canberra Drive (Parcel A and B) has previously transacted at $644 psf ppr and $650 psf ppr respectively. This was back in March of 2020. However, we see the recent GLS in June 2021 for Ang Mo Kio Ave 1 closing at $1,118 psf ppr. This is a 73.6% increase in land cost. The same goes for Lentor Central in District 26, which concluded at $1,204 psf ppr. This is an even greater increase of 87% in land cost.
Something else to consider: Potential En Blocs
Another aspect we should also consider would be the potential en blocs as well. We take a look at the Chuan Park en bloc in District 19 that is located in OCR, which had a land cost of $1,281 psf ppr. This means an estimated future launch price of $2,250 - $2,380 psf.
As for the potential en bloc of Thomson View in District 20, it sealed the deal at a land cost of $1,293 psf ppr, meaning that its estimated future launch price is looking to be at around $,2250 - 2400 psf. Here we are talking about RCR locations for this price point.
It truly makes sense to upgrade to a new condominium before the new price norm sets in.
Of course, we don’t have a crystal ball to analyse which location has the highest benefits. There will always be anomalies and special cases - but with close observation and detailed analysis of the trends and location, we can have a much more targeted approach and higher success rate in securing the right unit.
If you would like to have an in-depth analysis, feel free to reach out for the latest property news and updates.
The above is written by Kaeden Ong. To know more, contact him at +65 9048 0660.
The information provided is for generation information purposes only and does not have regard to specific investment objectives, financial situation and the particular needs of any recipient hereof. No information here should be used as legal, taxation or investment advice.