The latest second quarter 2022 (2Q22) flash estimates of the private property price index (PPI) by the Urban Redevelopment Authority (URA) were released on 01 July 2022, and there were quite a number of interesting findings. So, what were the interesting findings? Let’s find out.
Overall, the headline quarterly PPI number for 2Q22 came in at 180.4 points, or 3.2 percent increase against the previous quarter of 174.8, and a 10.3 percent increase from the previous year’s quarter in 2Q21.
With that, looking at the individual regions, including the Core Central Region (CCR) or the prime areas, the Rest of Central Region (RCR), also known as the suburbs, and the Outside Central Region (OCR) or the mass markets, private property prices in the suburbs increased the most, up 6.0 percent in 2Q22 as compared to a decline of 2.7 percent in 1Q22.
Similarly, on a yearly comparison, private home prices in the suburbs rose double digits at a record 12.9 percent in 2Q22, outpacing the private home price growth in both the prime and mass market regions. Moreover, based on the yearly price comparisons among the three regions, private home prices in the suburbs continue to outpace all other regions by double digits, except for the first quarter of 2022 where yearly price growth dipped by 6.6 percent.
Actually, mass market private home prices may be the key region to watch
While the latest news headlines have been touting the arrival of foreigners and how they contribute to the overall upward price trajectory of the URA PPI, and the state of the private property market in the CCR region as a whole, it might be worthwhile for property analysts, agents, and watchers to take a closer look at the mass markets or OCR region for any changes in the potential market price trends.
In fact, the private home prices in the OCR region seem to have benefited from the pent-up demand for HDB upgraders, the long-waiting lists for Built-To-Order (BTO) flats due for completion as a result of construction delays, supply chain issues, and the ongoing fallouts arising from the various geo-political events happening as we speak.
While analysts and property watchers were debating over the sustainability of the overall private home price growth for the whole island, there are questions whether mass market private home prices could turn out to be unaffordable going forward.
How so? Let’s find out.
Looking at the various private home price indices, the yellow line, which denotes the quarterly private home price index in the OCR region has outpaced the general PPI price growth (denoted by the blue line), the price growth rates in the RCR (denoted by the grey line), and CCR (denoted by the orange line) regions.
Therefore, based on the findings, the real question, we feel, should be whether analysts, agents, and property watchers should instead turn their attentions to the sustainability of private home prices in the mass markets, and not just the general private home price growth for the entire island.
Some of the questions could be whether the potential mass market home buyers could afford to purchase another bigger-sized home among the various mass market regions. These include the HDB upgraders, and those buyers who are looking to downgrade, including baby boomers who are looking to downgrade their existing larger-sized homes into smaller-sized private homes.
For the private home sellers, there are also questions whether their existing private homes could be attractive propositions to this pool of mass market buyers, considering that monetary conditions have been tightening lately, and several banking and financial institutions have announced changes to the home mortgage packages, especially the fixed-rate packages where upward adjustments were made.
Therefore, we feel, attention should instead be focused on the prime districts, but for different reasons apart from the influx of foreign buyers. In fact, there could be opportunities for local buyers, including the HDB upgraders, and those looking to downgrade their existing homes to take a closer at prime districts for value buys, as illustrated from the earlier blown-out chart which showed that CCR prices have generally lacked behind other regions.
Well! If it is for the prestige, proximities to good schools, and accessibility, there are still plenty of opportunities to look for value buys in the prime districts for home buyers to seek out for.
Is there any data to prove that CCR prices lagging behind OCR price growth
In order to show the growth trends in the relative price index growth in both the prime districts (CCR) and the mass market (OCR), let us show a table on the relative percentage price index changes in both regions.
As you may notice from the table above, the CCR region recorded several instances of negative quarter-on-quarter (QoQ) and year-on-year (YoY) price growth since 4Q2018 just as the onset of property cooling measures, and again in 1Q2020 when the Covid-19 pandemic hits the island state.
In fact, since 1Q2018, on a QoQ comparison, there have been 4 recorded instances of negative QoQ price growth in the CCR region as compared to the OCR region where there were merely 2 instances of negative to flat QoQ price growth.
On a YoY comparison, the CCR region recorded 4 instances of negative back-to-back negative price index growth during the first four quarters of 2020, whereas in the OCR region, there were none.
As such, the above table does indicate the CCR prices in general tend to lag behind, and the magnitude of the price index growth in the CCR region tends to show significant negative price growth during periods of economic shocks like the implementation of property cooling measures or deep economic slowdown as a result of events such as the Covid-19 pandemic where general sentiments among property market players tend to be the weakest as compared to the boom years.
Another way to determine if the prices, in general, in the OCR region, have moved up further against the prices in the prime districts, we can look at the price spreads, meaning the with a wider price spread in percentage terms for the OCR region against the price index of private homes in the prime districts (CCR), there is a reasonable conclusion that mass market condominium prices could be pricier than those in the prime districts, assuming all other conditions remain the same.
Let us now take a look at just how the relative price spreads have evolved in the OCR region against the CCR region.
As readers might have noticed, the relative price spread, especially the yellow colour highlighted set of price spreads, have crossed above the 40 per cent mark since 4Q21. Given this observation, it does provide some insights on how condominium prices in the OCR region have moved up significantly against those in the prime district condominium prices.
Price Sustainability Debate – Would focus be changed
To sum up this article, the headline PPI number does bring out quite a bit lately over the question of price sustainability, and there have been various questions going around regarding this debate. Although significant price corrections or unexpected crashes might be on the minds of many property watchers and market players, we feel that, given the data provided, astute property buyers should instead actively seek out for value-added opportunities, and this time, the tide could be turning for the better in the prime districts that might be attractive enough to draw in local buyers who might have misperceptions about affordability matters.