Sunday, October 25, 2009

Home-buying euphoria tapers off

For the first time in months, supply outstrips demand but supply glut is unlikely

A quiet period is always a good time for taking stock – and the rare breather in the housing market right now is allowing buyers to size up the state of home supply.

As the feverish pace of new home sales begins to subside following price hikes and the Government’s efforts to cool the market, the stock of available homes for sale is beginning to outstrip demand for the first time in months.

Last month, developers sold fewer units than they launched, only the second time they had done so since the property market started picking up in February this year.

The last time this happened was in July. Even then, however, the take-up rate was still almost one for one, at 96 per cent.

The take-up rate of brand-new homes last month was 81 per cent, by far the lowest since February, according to data released by the Urban Redevelopment Authority (URA) last week.

Last month’s figures, however, seemed to signal a turning point in the housing market’s current boom.

What the falling take-up rate translates to is a growing inventory of units that have already been launched and are therefore available for sale but remain untouched by home buyers.

As of the end of last month, there were 3,157 units that had been launched but were still unsold, URA data shows.

This was a 10 per cent increase from the number in August – a significant reversal of the trend, which had been on the decline since January.

As the home-buying momentum tapers off and the Government resumes regular scheduled land sales, the supply of new homes is poised to rise further – and probably faster than demand can keep up, say property consultants.

The good news, though, is that take-up rates have been so unexpectedly high in recent months that a serious supply glut is unlikely to result any time soon.

One reason home demand started to lag supply last month could be the cooling measures introduced by the Government on Sept 14.

Any knee-jerk reaction to the moves, which included the removal of the interest absorption scheme and the resumption of scheduled land sales, would have taken a toll on home sales in the latter half of the month.

However, property consultants also point to an increasing resistance by home buyers who are starting to be put off by price hikes.

‘The buying euphoria seen in the earlier months of the year has cooled somewhat, with sales moving at a slower pace, as buyers are likely to take longer to evaluate their purchase decisions,’ said Ms Tay Huey Ying, director of research and advisory at property firm Colliers International.

On the supply side, developers have also held back on new launches as they anticipate an adverse reaction by buyers to the Government’s measures, said Dr Chua Yang Liang, head of South-east Asia research at real estate consultancy Jones Lang LaSalle.

Ms Tay expects developers to continue launching and selling fewer units for the rest of the year, as a result of cooling measures dampening market sentiment.

‘Developers are likely to be selective in their project launches or release units in small batches to test the market’s response,’ she said.

‘Depending on market conditions, some developers may also choose to defer their project launches to next year.’

She believes that for this month, developers may launch and sell fewer than 1,000 units. If this happens, it would be the first time since March and January respectively.

Of the top 10 developments with the most units launched and unsold as of the end of last month, half are entry-level condominiums in suburban areas, while the other half are mid-tier projects on the city fringe.

They range from developments that have just been launched, such as CapitaLand’s The Interlace in Alexandra Road, to those that have been on the market for a considerable amount of time, such as Hong Leong Holdings’ Aalto in Jalan Kechil, near Meyer Road, which first started sales in August 2007.

Source: Sunday Times, 25 Oct 2009

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