RBS calls the top, as residential yields hit 'unsustainble' low
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RBS calls the top, as residential yields hit 'unsustainble' low
by Tan Hui Leng
05:55 AM Aug 15, 2009
WHILE some industry watchers have said they feel the current exuberance in the residential property market is sustainable, RBS Singapore is offering the contrarian view that the peak of this cycle is nearing.
In a report released on Thursday, RBS analyst Fera Wirawan noted that prices in the residential segment increased a rapid 16 to 26 per cent from March to July this year.
Hence, prices now are just 22 per cent below the 2007 peak in the prime segment and 8 per cent below the 2007 peak in the mid segment, she said. Mass market property prices "have recovered fully to their 2007 level".
But, Ms Wirawan added, as more property comes on stream next year and firms cut rental budgets, the resulting slide in rental yields "should drive down prices". RBS expects prices to fall by 10 to 20 per cent in the residential sector over the next year.
It's precisely the fall in rental yields that gives the analyst further cause to believe that the peak is near. Rental yields in the luxury segment fell 0.7 percentage point in the second quarter from the first quarter to 2.4 per cent and 0.9 percentage point on-quarter in the overall residential segment to 4.1 per cent, RBS calculated.
Yields of newly-launched projects are at an "unsustainable" 1.3 to 1.8 per cent, said Ms Wirawan. "We expect rents to slide further, given a full supply pipeline."
Furthermore, new launches are at a 30- to 80-per-cent premium to current developments, versus the historical average of 20 per cent. Noted Ms Wirawan: "We believe the gap is unlikely to narrow because banks are reluctant to raise valuations of existing projects significantly."
