Home hunters hoping for big falls in executive condominium (EC) prices will probably need to be more realistic.
Experts expect prices to come under some downward pressure after recent low winning bids for EC sites by developers and weak sales in the segment.
But the experts say the overall picture is more complex, and that prices may not drop by a lot.
Many EC projects are on sites that were bought at higher prices earlier when the outlook was brighter, leaving developers with little room to manoeuvre now unless revenue margins are sacrificed.
Construction costs have also risen, and there may be higher costs associated with new prefabrication requirements from November last year.
Two recent EC site sales reflect the cooling market.
Last week, a Woodlands Avenue 12 site was sold for $103.8 million, or $278 per sq ft per plot ratio (psf ppr).
An Anchorvale Crescent site was sold for $157.8 million or $280 psf ppr in the same month.
Both were the lowest EC land prices since July 2011. At an average of $279 psf ppr, they were far below average EC land prices of $351 psf ppr last year, $360 psf ppr in 2013 and $321 psf ppr in 2012, a JLL analysis shows.
Breakeven costs for the two sites are expected to be about $650 psf.
"They can easily sell well below $800 psf and still make a decent margin," said Mr Ong Teck Hui, JLL's national research director.
In comparison, EC new sale prices have been on an upward trend over the last few years, hitting an average of $820 psf in the fourth quarter of last year, up from $783 psf in the same period of 2013 and $739 psf in 2012.
A total of 2,251 EC units that have been launched remain unsold, of which 1,831 are from the five projects launched from November to January: Bellewoods, Bellewaters, Lake Life, The Amore and The Terrace.
Consultants expect another 6,500 units or so to come onto the market from projects that have yet to be launched for sale.
"Softening prices of private homes (also) place a downward pressure on EC prices, if that gap between private homes and ECs is to be maintained to keep ECs attractive to buyers," said Mr Ong.
"With sluggish sales at current price levels, prices may have to be adjusted downwards by about 5 to 8 per cent to achieve significantly better sales take-up."
But while the latest EC sites have been sold at lower prices, construction costs have crept up slightly with foreign labour constraints and prefabrication requirements, said Mr Desmond Sim, CBRE research head for Singapore and South-east Asia.
Under these requirements, which kicked in from Nov 1, projects built on Government Land Sales (GLS) sites must meet higher building and constructability standards.
Developers bidding for GLS sites must also meet a certain
level of prefabrication, such as using drywall as internal partitions in residential sites.
Although developers with lower land costs may price units lower to gain a competitive edge, their end products can still be put up for sale at the already benchmarked prices, with more room for discounts, said Mr Sim. "The latter is more favoured as it preserves the value of the whole development," he explained.