Singapore’s Real estate may be headed for a fall, but not a collapse

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Report by Asian Wall Street Journal

Singapore – Weakening demand, rising construction costs and inflation are threatening to bring Singapore’s skyrocketing property market back to earth this year, although analysts don’t expect the market to collapse.

For most of last year Singapore developers were on a spree, as demand drove property prices to multiyear highs while projects were being started almost daily, making the island nation one of the darlings of the Asian property boom.

“At the same time last year, things were a bit crazy, to say the least. Prices were going straight through the roof. There was a lot of euphoria,” said Joseph Tan, senior strategist at Fortis Bank in Singapore.

“But the slowdown in the equities market in the US and Singapore economy has definitely taken some shine off the [property] market.”

Property consultancy firm Knight Frank said developers offered 410 new private-housing units in January, down from 445 units in December and a monthly average last year of 500 private units through November.

“The relatively thinner volume in January was a result of some developers delaying their project launches,” said Nicholas Mak, head of research at Knight Frank.

The number of units sold also dropped in January and December, to 316 and 304, respectively, from more than 500 monthly in the first 11 months of 2007.

Mr. Mak said median prices for new residential units fell in January to S$1,088 per square foot from S$1,124 in December.

“My most bullish outlook for the entire year is that property prices will be flat,” CLSA analyst Yew Kiang Wong said. “Being realistic, we are expecting a 10% to 20% price decline across all segments.”

About 85% of Singaporeans live in public housing built by the government’s Housing and Development Board. Private developers compete to provide housing for the remaining 15% of Singapore nationals, along with a sizable foreign population.

Private-home prices rose 31% in 2007, fueled by the country’s ambition to become a business and entertainment hub in Asia.

With demand on the rise, developers fought for land through collective sales and site offerings from the government. Singapore turned into a virtual construction site, and many projects were sold out within hours of being offered.

In an effort to cool things off, the government implemented measures that included increasing a tax charged on developers and withdrawing a scheme that had allowed buyers to secure properties with minimum down payments and quickly resell them.

“Looking forward, the current weakness in the US housing market and economy and the tight credit environment will likely cast a cloudy outlook over the general economy and business conditions for at least the first half of 2008,” Richard Hu, chairman of CapitaLand Ltd, Southeast Asia’s largest property developer by market capitalisation, said recently.

Shares of property developers briefly fell yesterday following news that Kuwaiti firm Kuwait Finance House didn’t exercise options to buy 97 units of a condominium being developed by Singapore’s GuocoLand Ltd. for S$818m.

Market heavyweight City Developments Ltd. also said recently it may delay new projects. Some developers have suggested business will get back on track in the second half of this year, but some analysts and economists disagree.

“We don’t believe this is a half-year thing. It is the start of a more prolonged recession that will have an impact on developers down the line,” said CLSA’s Mr Yew.

He is also bearish on the office market, saying the tightening credit environment will slow expansion plans in the financial-services sector.

Inflation is also posing a problem for the government of Singapore, which has been banking on foreigners to fuel the island’s population growth, anticipating an increase from 4.6m people to more than six million over 20 years.

Typically, foreigners are the first to leave a country when the cost of living becomes a problem.

Inflation reached a 25-year high of 6.6% in January. But not everything is gloomy. Developers are likely to post strong earnings for the year, as they will continue to recognize profits from sold projects.

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2 Responses to Singapore’s Real estate may be headed for a fall, but not a collapse

  1. Very interesting article. Inflation is posing a problem all over looks like

  2. I agree with Mr. Yew, the tighting of the credit requirements have posed a problem with the real estate market.

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