It has been over 3 years since private residential home prices have fallen from its peak back in 2013. It has fallen as much by 11% since the third Quarter of 2013 to the third quarter of 2016. In fact, the three property market segments has seen price decline in 3Q2016 with approximately 1.8% fall in Core Central Region (CCR) versus a 0.3% increase in 2Q2016; a 1.3% fall in Rest of Central Region (RCR) versus a 0.2% uptick in the previous quarter; and a 1.2% decline in Outside Central Region (OCR) versus a 0.5% dip in 2Q2016.
Since 2013, the market sentiment has been on a downhill ever since. With this in mind, I want to discuss on the possibility of seeking properties that can be seen as defensive assets – properties in these areas have previously demonstrated its resilience and ability to sustain its value in previous down-cycles. My research on this led to me to believe that planning area of Clementi, Bukit Timah, Hougang and Redhill are amongst the most resilient in the previous downturn cycles. As a matter of fact, the doesn’t really come up as a huge surprise because these are areas of maturity and have very good infrastructure and amenities – Redhill is one good example where you can find condominiums near MRT stations like Principal Garden and Alex Residences.
How did we come out with this?
By using the change in median per-square-foot resale prices of private residential non-landed homes, we were able to draw comparisons in the different planning areas since the peak-price period to the existing down cycle. A minimum of ten resale transactions in these areas were required in each reference quarter so that we could better draw comparisons.
By using the performances of these private homes (in terms of prices) near to the 26 MRT Stations, we analysed by matching resale transactions from Urban Redevelopment Authority (URA) caveat data and comparing the purchase and subsequent resale prices of private non-landed homes and found that homes located within 500-metre of a MRT Station is has greater likelihood to change hands at profit compared to those that are not close the MRT Station at all. (Not surprising on this)
Let take on this example – Since 2000, there were 194 out of a total of 204 private residential non-landed homes, located within 500 meters of a MRT Station, were bought and resold in 2015 with a profit for the property owners. Comparing this to 634 out of 689 private residential non-landed homes sold in 2015 (95% versus 92%). In fact, these private homes close to the MRT Station, also fetched a slightly higher annualised profit averaging 6% compared with the 5% for homes not located near an MRT station.
Mature estates offer good price resilience.
Comparing the individual MRT stations that are within 500m of the homes in the resilient areas that were bought since 2000 and subsequently resold in 2015, it was found that the homes around Beauty World MRT station saw the highest average annualised profit at 9%, followed by those near Chinese Garden MRT station at 8%, Aljunied MRT station and Kovan MRT station at 7%, and Kembangan MRT station at 6%. The comparison excludes MRT stations around where there were less than five homes whose caveats could be traced over the intervening period.
Over the past five years, for non-landed properties in the resilient planning areas bought in 2010 and resold in 2015, 98%, or 59, of a total of 60 properties near MRT station were resold at a profit. In comparison, a marginally smaller percentage of 96%, or 154, of a total of 160 homes not located near an MRT station resulted in profits for their sellers. The annualised profit was also slightly higher for the homes located within 500m of an MRT station at an average of 23%, compared with 22% for homes located away from MRT stations.
What do you think? Rather interesting ain’t it?