Home prices near replacement cost

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Published September 13, 2008

Home prices near replacement cost

So they are unlikely to fall by much, argues Redas chief

By KALPANA RASHIWALA


REAL Estate Developers Association of Singapore (Redas) president Simon Cheong says private home prices are unlikely to drop much from current levels as selling prices are close to replacement costs, inclusive of construction costs.

Also, developers had a good year last year and 'a lot of buffer', he added, suggesting that they will be under less pressure to lower prices to chalk up further sales. 'So I don't anticipate that the drop will be too severe if there is one,' Mr Cheong told reporters on the sidelines of Redas' Mid-Autumn Festival Celebration yesterday.

However, some market watchers point out that developers are not uniform in financial strength.

DTZ senior director (research) Chua Chor Hoon agreed that the established developers who have made supernormal profits in the last few years have more holding power. 'However, some new players who bought sites at high prices last year may not have enjoyed big profits. And there are smaller developers who may need to roll projects one after another to generate cashflow,' she said.

Analysts say weaker players may be more inclined to trim prices if necessary to dispose of their projects. Another factor affecting price levels is the secondary market, including subsale transactions.

The median subsale prices of Citylights and The Sail @ Marina Bay eased about 2 and 14 per cent respectively in the second quarter of 2008 from the preceding quarter, according to a recent caveats analysis by DTZ.

Mr Cheong also said that high-end home prices have peaked but will probably achieve a new high 'eventually when the sentiment improves, the economy improves, come 2010 when the integrated resorts come into play and with Singapore being a successful wealth management centre'.

Mr Cheong also said he continued to be upbeat about the Singapore property market in the long term, citing the Republic's political stability and strong fundamentals, as well as upcoming projects/events that will further position Singapore as a global city. 'I think when the whole storm blows over, the market should be able to accept the situation better and hopefully by next year, say 12 months' time, we will be in a better state than now,' he said.

Despite the generally upbeat tone of Mr Cheong's comments, there is no denying the uncertainty in the short term.

Frasers Centrepoint CEO Lim Ee Seng, when quizzed on where the property market is headed in the next six months, said: 'I don't know. I hope that the market will be better. It's all sentiment-driven. But I believe if there is good news in the market, the good sentiment will come back very quickly.'

Gwee Lian Kheng, group chief executive of UOL Group, said that there may be a tendency for some developers to slow down on the construction of their projects given that holding cost (interest cost) is 3 to 5 per cent, much lower than the 30 per cent rise in construction costs in the past nine months. 'So there's an advantage by slowing down.' On a more positive note, Mr Gwee noted that prices of some construction materials like steel have started to stabilise.

Others like City Developments can ride on the advantage of having a diverse residential landbank comprising low-, mid- and high-end sites, said the company's group general manager Chia Ngiang Hong. 'We can pull out projects for which there is demand in the market. For the time being, the low- and mid-ends are still quite resilient,' he added.