Follow the Sine to Singapore Property Prices

(Singapore)

Most observers say that either the peak has already been touched, or will be touched very soon.

The Urban Redevelopment Authority's benchmark private home price index inched up just 0.2 per cent quarter on quarter (q-o-q) in Q4 last year, its ninth consecutive quarter of moderation. For the full year, the index's 5.9 per cent rise was a third of the 17.6 per cent gain registered in 2010. The figures were identical to flash estimates released on Jan 3.

And for the first time since Q3 2009, the increase in URA's landed property sub-index was lower than that for the non-landed property sub-index. The landed sub-index rose just 0.1 per cent q-o-q in Q4 2011, compared with 0.3 per cent for the non-landed sub-index. In fact, for semi-detached houses, the price index actually fell 0.6 per cent q-o-q in Q4.

'In that quarter, prices of semi-detached houses in the east fell 1.6 per cent while those in the north-east softened by 1.3 per cent. This shows that some segments of the landed market are facing stronger price resistance,' says Credo Real Estate executive director Ong Teck Hui. 'However, landed prices have risen 80 per cent from the market trough in Q2 2009, outperforming the 48 per cent increase for non-landed for the same period.'

URA's overall rental index for private homes rose 0.4 per cent q-o-q in Q4, or half the 0.8 per cent rise it had posted in Q3. Full year 2011, the index was up 3.8 per cent - a fraction of the 17.9 per cent gain it had put on in 2010.

The outlook for private home prices looks bleak. CBRE predicts a price drop of 5-15 per cent this year, with luxury/prime properties taking the bigger hit and mass-market homes being the least affected.

Credo's Mr Ong says: 'It's difficult for prices to regain momentum as the recently imposed ABSD (additional buyer's stamp duty) and the economic slowdown could ease demand. Sustained supply and competition among sellers will also keep a lid on prices.'

Giving a different take, Savills Singapore research head Alan Cheong said: 'We still believe it's difficult to conclude if we've reached an inflexion point, if any at all.'

Mr Cheong cites the oligopolistic nature of the Singapore residential property market, with large developers with deep pockets who're likely to resist any price cut. 'A cocktail of low interest rates till at least late-2014 (as pledged by the US Federal Reserve) and higher inflation will in due course reignite another round of interest in the residential market as it's deemed a good hedge against inflation,' he said.

Credo's Mr Ong paints two scenarios. 'In the best-case scenario, if the economic slowdown is milder than expected, then buying sentiment may remain positive, translating to sustained buying activity which will help to keep prices stable amid the build-up in supply. In the worst-case scenario, if there's a recession, we can expect demand to slacken, creating downward pressure on prices.'

Lamenting the difficulty in making accurate predictions, Knight Frank chairman Tan Tiong Cheng said: 'Each time after the government has announced cooling measures in the past two years, I thought the measures would be sufficient to cool the market. But things have turned out to be otherwise.'

He admits that the ABSD will have some effect in curbing investment and foreign demand for private homes. 'Prices will come down - but to what degree before they go up again? What's the alternative for people with savings? Where should they put their money? If you believe in the longer term, property is as good a bet as any. After all, interest rates are expected to stay low for the next couple of years.'

Price declines could be exacerbated by the secondary market, where volumes have slowed down more sharply than in the primary market (that is, developer sales). The number of units (excluding executive condos, or ECs) sold by developers fell 2.4 per cent from 16,292 units in 2010 to 15,904 units in 2011. However, the number of homes sold in the secondary market (resales and subsales combined) slipped 27.6 per cent, from 22,608 in 2010 to 16,357 in 2011.

Developers are wooing buyers with nice showflats and appealing ad pitches. The ease of stretching out progress payments over a few years - compared with having to pay the full price upfront when buying a completed home in the secondary market - is another reason to buy a home directly from a developer.

DTZ's Asia Pacific research head Chua Chor Hoon said: 'When secondary volumes come down, eventually it will affect prices. If demand slows down and sellers find it hard to sell after a few months hanging on to their prices, some owners will start to reduce prices. There will be more bargaining power for buyers as well as occupiers as rents start to ease.'

URA stats also show that developers completed 12,469 private homes (excluding ECs), up 19.9 per cent from the 10,399 in 2010. This has begun to weigh on residential rents, which are rising at a slower rate.

Savills Singapore expects a 'mild correction' of 5 per cent in rentals this year as more new apartments come on stream in the months ahead. It also expects the number of private residential leasing deals (excluding ECs) to hover around 45,000 in 2012, after hitting an all-time high of 45,062 leases last year. The figure for 2010 was 41,573.

'The strong 2011 showing may be attributed to Singapore becoming the preferred location among MNCs for their regional HQs. This has also attracted more senior and top executives to relocate here,' said Savills' residential leasing head Patrick Lai.

DTZ's Ms Chua said rental pressure is greater in Core Central Region but this is likely to shift to Outside Central Region in three to four years due to expected completion of projects in suburban areas arising from the ramp-up in Government Land Sales since the second half of 2010.

Source: Business Times © Singapore Press Holdings Ltd. Reprinted with permission.

FACTORIES and warehouses were the top-performing real estate sector last year, thanks to robust demand for industrial property.

Prices shot up 27.2 per cent over 2010 while rents rose 15.5 per cent. In comparison, prices for office properties were 13.8 per cent higher and prices for shop properties edged up 5.3 per cent.

The numbers released by the Urban Redevelopment Authority yesterday reflect the way investors shifted focus to industrial space last year in response to tougher buying rules to cool the booming residential property.

The economic improvement also contributed to the surge in demand.

Mr Lee Sze Teck, senior manager for research and consultancy at DWG Group, said: 'Tenants that signed rents in 2008 would have been grappling with the financial crisis and would have been able to negotiate a lower rental.

'Rents typically last three years, so when they came up for renewal in 2011, rents could have been higher due to the more optimistic economic outlook as compared to 2008.'

Other analysts have attributed the price and rental growth to the record take-up rates.

'Factory space occupancy rate in the fourth quarter of 2011 achieved a three-year historical record with 93.2 per cent take-up of available space island-wide,' said Mr Nicholas Mak, head of research at SLP International.

He added that occupancy rates at warehouses performed even better, hitting 94.3 per cent, the highest recorded figure since 1996.

Several new industrial developments have been asking for significantly higher prices. Oxley Bizhub in Ubi has achieved a selling price of about $612 per sq ft, well up on the average $400 per sq ft price that similar properties in the area are going for.

An increase in the amount of industrial state land released for sale could also have contributed to the overall lift in prices, said analysts, with developers increasingly submitting higher bids in the hope of securing land in order to meet investor demand.

While 2010 and last year were bumper years, the strains are already showing with experts saying a slowdown is imminent, in line with anticipated weaker economic growth.

Industrial sector rent and price growth in the final three months of the year was the slowest for the year.

Fourth-quarter prices were up 4 per cent compared with a 6.9 per cent expansion in the preceding quarter while rents rose 0.4 per cent, well under the 2.4 per cent expansion in the three months to Sept 30.

Mr Mak said these figures indicate the sector's weakest growth since 2009, a time when the industrial property market was beginning its recovery from the global financial crisis.

A total of almost 38 million sq ft of space is in the pipeline from upcoming projects, as at the end of last year. About 33.2 million sq ft of that is expected to be completed within the next two years.

This new supply will enter a more subdued market, say market watchers.

Mr Ong Kah Seng, director of R'ST Research, said rents for multi-user factories will likely drop 7 per cent within the next 12 months, with older properties coming off worse.

He also said that warehouse rents could fall by up to 4 per cent within the year.

Recently announced regulations on developing state industrial land have put restrictions on how new projects can be sub-divided.

Analysts say this could lead to heightened interest in existing strata-titled industrial space.

But Mr Ong warned that speculation has become a concern in strata-titled industrial properties.

'The risk for price correction can be high if the speculative investors cannot find new takers should... leasing fundamentals weaken in an economic slowdown.'

cherlim@sph.com.sg

THE latest housing data shows that a record number of uncompleted private homes are in the works, in the wake of an unprecedented roll-out of land parcels by the Government in recent years.

The aim was to cool prices and property analysts say it seems to be working.

They believe private home prices will flatten or even fall against this backdrop after moderating sharply in the three months to Dec 31 across residential, commercial and industrial property.

Semi-detached home prices fell, the first segment to move lower since 2009.

The data from the Urban Redevelopment Authority (URA) released yesterday showed a supply of 77,089 uncompleted homes as at Dec 31 - the highest figure since data was first made available in 1999.

And the number of these homes still seeking buyers is steadily climbing.

For example, fourth-quarter data showed there were 17,084 uncompleted homes unsold in launch-ready projects - a 23 per cent jump from a year earlier.

The number of unsold units in already launched projects also jumped 58 per cent to 5,584 units in the fourth quarter.

Still, this is a far cry from the alarming levels seen in the 1998 downturn when nearly 9,000 units at launched projects were unsold in the first quarter of 1998, said Mr Ong Teck Hui, head of research and consultancy at Credo Real Estate.

But ERA Realty key executive officer Eugene Lim said the huge number of homes on the way will have an impact.

He said this and a slowing economy will add further downward pressure on rents and prices.

The URA data also showed the first slide in prices for a housing segment since the second quarter of 2009, suggesting that the private residential market has peaked or is close to peaking.

Private home prices rose 0.2 per cent from the previous quarter, bringing the full-year rise to 5.9 per cent, but semi-detached homes dipped 0.6 per cent.

Credo's Mr Ong noted that the fourth quarter is also the first since 2009 to see landed housing prices rising more slowly - 0.1 per cent - than those of non-landed housing at 0.3 per cent.

'This shows that some segments of the landed market are facing stronger price resistance,' he added.

Still, landed home prices have risen 80 per cent from a trough in the second quarter of 2009, outperforming the 48 per cent jump for non-landed homes.

Experts say the market is likely to turn cautious gradually. Prices will struggle to gain momentum given the recently imposed cooling measures such as the 10 per cent extra stamp duty on foreign buyers, as well as the economic slowdown.

Mr Joseph Tan, CBRE's executive director of residential, expects mass market demand to hold up well, though it is unlikely to match last year's, when new private home sales surpassed 16,000.

'We expect the demand for new homes to decline to between 13,000 and 14,000 units and home prices to soften by 5 to 15 per cent, with luxury and prime residential properties on the higher end of the spectrum and mass market homes least affected,' he added.

Office rents rose 0.3 per cent in the fourth quarter from 0.9 per cent in the quarter before while prices gained by 1 per cent, lower than the 3.7 per cent rise previously. Prices for industrial space rose 4 per cent, down from 6.9 per cent.

See Money

IT WAS a stellar year for the residential rental market with a record number of leases inked last year.

An analysis of Urban Redevelopment Authority (URA) data by property consultancy Savills Singapore found that 45,062 leases were signed last year.

That was an 8.4 per cent jump on 2010's 41,573 leases - itself a record.

One key factor was Singapore's growing stature as the regional Asia-Pacific headquarters for firms, including multinational companies, said Savills head of residential leasing Patrick Lai.

More senior executives are relocating here as some companies shift their staff here from more expensive cities such as Hong Kong and London. Savills has also seen more lease renewals, Mr Lai added.

Rents though were not quite as strong.

Private housing rents inched up 0.4 per cent in the three months to Dec 31, slowing from the 0.8 per cent increase the quarter before, URA data released yesterday showed.

City fringe non-landed homes posted the largest gain of 1.2per cent while semi-detached homes was the only segment to show a rental dip of 0.2 per cent.

For the full year, however, private housing rents rose by only 3.8 per cent compared to a leap of 17.9 per cent in 2010. Suburban rents took the lead with a 4.7 per cent rise, followed by 3.5 per cent for city fringe areas and 2.6 per cent for city centre homes.

Experts say the slowdown in rent increases could be due to the large supply of properties available in the market.

DTZ's head of Asia-Pacific research, Ms Chua Chor Hoon, noted that the vacancy rate for non-landed homes has risen for a third consecutive quarter, from 5.5 per cent in the first quarter of last year to 6.8 per cent in the fourth.

This is against a backdrop of a 20 per cent year-on-year increase in the number of home completions to 12,469 units last year - the highest number since 1997.

About 50 per cent of these completions are also in the prime districts of 9, 10 and 11 and the downtown and Sentosa areas. This is a much higher proportion compared to the 33 per cent in 2009 and 37 per cent in 2010, she added.

This has led to rents of non-landed homes in the city centre growing at a slower 0.1 per cent quarter-on-quarter in the three months to Dec 31, compared to a 0.5 per cent gain in suburban areas.

'While the pressure is currently greater on city centre rents, it is likely to shift to the suburban areas in three to four years' time,' she said.

'Based on URA's statistics, more than 12,000 units will be completed per year between 2012 and 2015. And more than 60 per cent of the expected completions in 2015 and about 80 per cent of the expected completions in 2016 are from government land sales projects due to the ramp-up in the programme since the second half of 2010,' Ms Chua noted.

Experts say the rental market is expected to remain 'healthy' this year.

Savills' Mr Lai said the introduction of cooling measures last month which require foreigners buying homes to pay an additional buyer's stamp duty of 10 per cent might result in more foreigners turning to the rental market instead to avoid paying the additional tax.

However, while volumes are expected to hold firm, rents might see a mild correction of 5 per cent this year as more residential projects are completed, he added.

THE recent release of the 2006 transcripts of the Federal Reserve's main policy-making body stimulated a small media frenzy. 'Little Alarm Shown at Fed at Dawn of Housing Bust,' headlined The Wall Street Journal. The Washington Post agreed: 'As financial crisis brewed, Fed appeared unconcerned.' The New York Times echoed: 'Inside the Fed in '06: Coming Crisis, and Banter.'

Comments from members of the Federal Open Market Committee (FOMC) now seem misguided. The first 2006 meeting was the last for retiring Fed chairman Alan Greenspan. Janet Yellen - then president of the Federal Reserve Bank of San Francisco and now Fed vice chair - said: 'The situation you're handing off to your successor is a lot like a tennis racket with a gigantic sweet spot.'

Treasury Secretary Timothy Geithner - then head of the Federal Reserve Bank of New York - called Mr Greenspan 'terrific' and suggested his already exalted reputation might grow even more. There was no sense of a gathering crisis.

All true, but it begs the central question: why? The FOMC members weren't stupid, lazy or uninformed. They could draw on a massive staff of economists for analysis. And yet, they were clueless.

It wasn't that they didn't see the housing boom or recognise that it was ending. At 2006's first meeting, a senior Fed economist noted 'that we are reaching an inflection point in the housing boom. The bigger question now is whether we will experience (a) gradual cooling ... or a more pronounced downturn'.

At that same meeting, Fed governor Susan Bies warned that mortgage lending standards had become dangerously lax. She explained that monthly payments were skyrocketing on mortgages with adjustable interest rates. She worried that many borrowers couldn't make the higher payments. The flagging housing boom concerned many Fed officials.

Proper conclusions

But they - and most private economists - didn't draw the proper conclusions. Hardly anyone asked whether lax mortgage lending would trigger a broad financial crisis, because America had not experienced a broad financial crisis since the Great Depression.

A true financial crisis differs from falling stock prices, which are common. A financial crisis involves the failure of banks or other institutions, panic in many markets and a pervasive loss of wealth and confidence.

Such a crisis was not within the personal experience of the members of the FOMC - or anyone. Nor was it part of mainstream economic thinking. Because it hadn't happened in decades, it was assumed that it couldn't happen. There had been previous real estate busts. From 1964 to 1966, new housing starts fell 24 per cent; from 1972 to 1975, 51 per cent; from 1979 to 1982, 39 per cent; from 1988 to 1991, 32 per cent. Declining home construction had fed economic slowdowns or recessions.

So the natural question seemed: would this happen now? The answer seemed 'no'. The overall economy was strong. This is the most obvious reason for an oblivious FOMC.

But it is not the main reason, which remains widely unrecognised. Since the 1960s, the thrust of economic policy-making has been to smooth business cycles. Democracies crave prolonged prosperity, and economists have posed as technocrats with the tools to cure the boom-and-bust cycles of pre-World War II capitalism. It turns out that they exaggerated what they knew and could do.

Policy paradox

There's a paradox to economic policy. The more it succeeds at prolonging short-term prosperity, the more it inspires long-run destabilising behaviour by businesses, banks, consumers, investors and government. If they think basic stability is assured, they will assume greater risks - loosen credit standards, borrow more, engage in more speculation, relax wage and price behaviour - that ultimately make the economy less stable. Long booms threaten deep busts.

Since World War II, this has happened twice. In the 1960s, the so-called 'new economics' promised that, by manipulating the budget and interest rates, it could stifle business cycles. The ensuing boom spanned the 1960s; the bust extended to the early 1980s and included inflation of 13 per cent, four recessions and peak monthly unemployment of 10.8 per cent.

The latest episode was the so-called Great Moderation, largely paralleling Mr Greenspan's Fed tenure (1987-2006), when there were only two mild recessions (1990-91 and 2001). We are now in the bust.

The Fed slept mainly because it overlooked the possibility of boom-bust. It didn't recognise that its success at sustaining prosperity - for which Mr Greenspan was lionised - might sow the seeds of a larger failure. It bought into an overblown notion of economic 'progress.'

The Great Moderation begat the Great Recession. One implication is that an economy less stable in the short run becomes more stable in the long run by reminding everyone of risk and uncertainty. Sacrificing long booms may muffle subsequent busts. But this notion appeals to neither economists nor politicians. Ironically, the central lesson of the financial crisis is ignored. -- The Washington Post Writers Group

Source: Business Times © Singapore Press Holdings Ltd. Reprinted with permission.