mr funny
11-03-08, 16:44
DJ FOCUS: Singapore's Property Market Gets A Reality Check
By Patricia Kowsmann
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--Singapore's red-hot property market may be ready for a reality check.
For most of last year Singapore developers were on a sale spree, as demand drove property prices to multi-year highs while new projects were being launched almost daily, making the island nation one of the darlings of the Asia property boom.
But weakening demand, rising construction costs and inflation are threatening to bring the skyrocketing market closer back to earth. Even though nobody expects the market to collapse, 2008 is likely to prove tough for the sector, analysts warn.
"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 U.S. and Singapore economy has definitely taken some shine off the (property) market."
According to property consultancy firm Knight Frank, developers launched 410 new private housing units in January, down from 445 units in December and a monthly average of 500 private units in the first 11 months of 2007.
"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 above 500 sold monthly in the first 11 months of 2007.
Mak said median prices for new residential units fell in Januaryto S$1,088 per square foot from S$1,124 in December. Not a single unit was sold in January for above S$4,000 per square foot, compared with five in December and 72 in July, one of strongest months of last year.
Analysts say the market is likely to go down further, causing property prices to fall for the year after rallying in the past two years.
"My most bullish outlook for the entire year is that property prices will be flat. Being realistic, we are expecting a 10% to 20% price decline across all segments," said CLSA analyst Yew Kiang Wong.
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 31.2% 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 construction site, and many projects were sold out within hours of being launched.
In an effort to cool the sizzling market, the government implemented measures including raising a tax charged on developers and withdrawing a scheme that allowed buyers of uncompleted properties to defer part of the progress payments.
The scheme, implemented when the island's property market crashed in 1997, fueled speculation among investors who secured properties with minimum downpayments and quickly resold them.
"Looking forward, the current weakness in the U.S. 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. (C31.SG), Southeast Asia's largest property developer by market capitalization, said recently.
Signs of a slowdown are already emerging.
Shares of property developers briefly fell Tuesday following news that Kuwaiti firm Kuwait Finance House K.S.C. (KFIN.KW) didn't exercise options to buy 97 units of a condominium being developed by Singapore's GuocoLand Ltd. (F17.SG) for S$818 million.
GuocoLand said Monday that the parties are in discussions for new options for units in the development, adding that the residential property market "appears to be cautious in Singapore."
Market heavyweight, City Developments Ltd. (C09.SG) also said recently that it may delay launches of new projects while the market is subdued.
When exactly property demand will pick up is everyone's guess. 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 Yew.
The analyst is also bearish on the office market, which boomed last year as demand from companies trying to expand outpaced supply.
"We believe the tightening credit environment will slow down any aggressive headcount expansion plans in the financial services sector, resulting in an anemic demand for office space over the next two years," he said.
Inflation is also becoming a problem for the Singapore government, which has relied on foreigners to increase the island's population to over six million, from 4.6 million, over the next 20 years. Traditionally, 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.
"Although general affordability is still better than that of 1996, our ground feel suggests that foreigners are starting to show resistance to rising costs of living in Singapore," CIMB analyst Donald Chua said in a Jan. 29 note.
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.
In addition, the slower rise last year of the mass property market means there is still room for growth in that segment.
"Because of the low interest rate environment and high rental costs, people might still be buying completed properties in the resale market and especially in the end that is more affordable," said UOB Kay Hian analyst Vikrant Pandey.
"But overall, in terms of the residential property prices, I am quite bearish, especially when talking about subsales and new sales."
-By Patricia Kowsmann, Dow Jones Newswires; 65 6415 4157; [email protected]
By Patricia Kowsmann
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--Singapore's red-hot property market may be ready for a reality check.
For most of last year Singapore developers were on a sale spree, as demand drove property prices to multi-year highs while new projects were being launched almost daily, making the island nation one of the darlings of the Asia property boom.
But weakening demand, rising construction costs and inflation are threatening to bring the skyrocketing market closer back to earth. Even though nobody expects the market to collapse, 2008 is likely to prove tough for the sector, analysts warn.
"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 U.S. and Singapore economy has definitely taken some shine off the (property) market."
According to property consultancy firm Knight Frank, developers launched 410 new private housing units in January, down from 445 units in December and a monthly average of 500 private units in the first 11 months of 2007.
"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 above 500 sold monthly in the first 11 months of 2007.
Mak said median prices for new residential units fell in Januaryto S$1,088 per square foot from S$1,124 in December. Not a single unit was sold in January for above S$4,000 per square foot, compared with five in December and 72 in July, one of strongest months of last year.
Analysts say the market is likely to go down further, causing property prices to fall for the year after rallying in the past two years.
"My most bullish outlook for the entire year is that property prices will be flat. Being realistic, we are expecting a 10% to 20% price decline across all segments," said CLSA analyst Yew Kiang Wong.
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 31.2% 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 construction site, and many projects were sold out within hours of being launched.
In an effort to cool the sizzling market, the government implemented measures including raising a tax charged on developers and withdrawing a scheme that allowed buyers of uncompleted properties to defer part of the progress payments.
The scheme, implemented when the island's property market crashed in 1997, fueled speculation among investors who secured properties with minimum downpayments and quickly resold them.
"Looking forward, the current weakness in the U.S. 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. (C31.SG), Southeast Asia's largest property developer by market capitalization, said recently.
Signs of a slowdown are already emerging.
Shares of property developers briefly fell Tuesday following news that Kuwaiti firm Kuwait Finance House K.S.C. (KFIN.KW) didn't exercise options to buy 97 units of a condominium being developed by Singapore's GuocoLand Ltd. (F17.SG) for S$818 million.
GuocoLand said Monday that the parties are in discussions for new options for units in the development, adding that the residential property market "appears to be cautious in Singapore."
Market heavyweight, City Developments Ltd. (C09.SG) also said recently that it may delay launches of new projects while the market is subdued.
When exactly property demand will pick up is everyone's guess. 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 Yew.
The analyst is also bearish on the office market, which boomed last year as demand from companies trying to expand outpaced supply.
"We believe the tightening credit environment will slow down any aggressive headcount expansion plans in the financial services sector, resulting in an anemic demand for office space over the next two years," he said.
Inflation is also becoming a problem for the Singapore government, which has relied on foreigners to increase the island's population to over six million, from 4.6 million, over the next 20 years. Traditionally, 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.
"Although general affordability is still better than that of 1996, our ground feel suggests that foreigners are starting to show resistance to rising costs of living in Singapore," CIMB analyst Donald Chua said in a Jan. 29 note.
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.
In addition, the slower rise last year of the mass property market means there is still room for growth in that segment.
"Because of the low interest rate environment and high rental costs, people might still be buying completed properties in the resale market and especially in the end that is more affordable," said UOB Kay Hian analyst Vikrant Pandey.
"But overall, in terms of the residential property prices, I am quite bearish, especially when talking about subsales and new sales."
-By Patricia Kowsmann, Dow Jones Newswires; 65 6415 4157; [email protected]