Primary vs secondary home price gap crashed to only 0.2% in 4Q13

What could this imply?

According to Barclays, over the past four months, home prices have fallen by 1.7%. And, compared with the all-time high that was reached in March 2013, the Centa-City Leading index of home prices has retraced by 5%.

Although the decline in secondary home prices have been slow and steady, developers have taken the lead on discounting as they have shifted their focus from margins to volumes.

Here’s more from Barclays:

With SHKP firing the first shot with the price cut at The Cullinan in October 2013, the gap between primary and secondary home prices have narrowed from 21% in 2Q13 to only 0.2% in 4Q13, according to Midland Holdings.

If one were to consider that the CCL secondary home prices index had dropped 1.5% y/y and that the primary-secondary gap has declined from 13% in 4Q13 to 0.2% currently, this would imply that primary pricing has dropped by 15%.

The developers’ more aggressive pricing strategy (both discounts and incentives) has helped to stimulate end-user demand. But as we wrote in our report “A look down the pipe” of 14 February 2014, in addition to pricing, the scale of the projects also appears to be a key ingredient to strong take-up.

Furthermore, as evident by the continued low secondary volumes, we believe the primary market volume increases have come at the expense of the secondary market. With a limited pool of end-users, we believe that developers will have to continue to move further down the demand curve and that more rounds of discounting are likely to continue.