Savills sees over 20% drop in luxury home prices

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Published November 21, 2008

Savills sees over 20% drop in luxury home prices

Announced forecast for period ending 2009 grimmest yet by any consultancy

By KALPANA RASHIWALA


(SINGAPORE) Savills Singapore is predicting price drops of more than 20 per cent in the next five quarters for high-end and super-luxury private homes.

This would follow declines of 14.3 per cent and 12 per cent respectively for these two segments in the first nine months of 2008 from the peak in Q4 last year.

The forecast is probably the grimmest announced by a property consultancy here - although some rival firms BT spoke to yesterday said that privately, they have similar estimates.

Research analysts at stockbroking houses/banks have already been making downbeat pronouncements, predicting declines of about 30 per cent or more for luxury home prices byl end-2009.

In its report yesterday, Savills said that the high-end and super luxury segments are more vulnerable to the deteriorating global investment climate. The average capital value for high-end (non-landed) residential homes fell to $2,065 per square foot in Q3 2008, 4.6 per cent lower than the preceding quarter and 14.3 per cent below the Q4 2007 peak of $2,410 psf.

In the super luxury league, the average capital value slipped to $3,240.40 psf in Q3, down 5.2 per cent from the preceding quarter and 12 per cent lower than the Q4 2007 figure.

Savills expects mass- market home prices to fall 5 to 8 per cent in the next five quarters - arguing that a price drop in this segment will be cushioned by continued support from HDB upgraders and other buyers picking up private homes for their own occupation.

The fundamentals of the mid-tier and mass-market segments are stronger today than during the Asian Crisis downturn, partly due to Singapore's more open immigration policy, Savills said.

Permanent residents have accounted for 14.3 per cent of private home purchases (excluding ECs) in the first nine months of this year, up from a 12 per cent share in 2004. PRs are likely to become a strong demand driver in the residential market in the coming months, Savills reckons.

Foreigners (including PRs) had 24.8 per cent share of private home purchases (including ECs) in the first nine months of 2008, down from a 25.9 per cent share for the whole of last year but still ahead of sub-20 per cent shares between 2000 and 2004.

In Q3 2008, a total of 4,287 caveats were lodged for private homes (including ECs), covering both primary and secondary markets - 9 per cent higher than the 3,934 caveats lodged in the preceding quarter.

However, the total value of private homes transacted edged up only slightly to $5.68 billion in Q3 from $5.62 billion in Q2.

'The average value of each unit transacted decreased, as evidenced by the very successful sales at mass market projects such as Livia and Clover by the Park. The proportion of transactions in the luxury and super luxury sectors dropped compared with mass market, as rich investors were more cautious about big-ticket purchases,' said Savills' director of marketing and business development Ku Swee Yong.

The average monthly rental value for high-end non-landed homes tracked by Savills contracted for the second consecutive quarter, slipping 3.6 per cent quarter-on-quarter to $5.62 psf in Q3.

This followed a 1.2 per cent drop in Q2. 'For full- year 2008, we expect prime rents to ease 4 to 6 per cent and fall a further 7 to 13 per cent in 2009,' Mr Ku said.

Tenants may now seek more competitive rentals, softening the market.

'So far, the impact on the local rental market has been limited, despite rents beginning to come off their peaks. The quarters ahead, however, should see a more entrenched rental decline as demand weakens in the face of a global economic slowdown,' Mr Ku said.

Savills also said that 10,923 leasing deals were recorded for private homes (excluding ECs) in the July to September quarter this year, the highest Q3 figure since 2000.

The leasing volume for Q3 2008 was up about 20 per cent from the preceding quarter and 25 per cent above the figure in the same period a year ago.

The strong leasing volume may have been contributed by a seasonally active Q3 that coincides with the opening semester of some international schools, as well as displaced tenants from collective sales completed last year, downgrading from high rental units to more affordable ones, and completion of new projects with attractive facilities and competitive rents.

However, Savills expects rental demand drivers to weaken in coming quarters. Savills' residential leasing head Patrick Lai says: 'The inflow of expats is expected to slow down, although we're still seeing an influx of foreign talent into Singapore, particularly in the healthcare, pharmaceutical, R&D and logistics industries.'

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Nov 21, 2008

WEAK PROPERTY SECTOR

Private home rents may fall 15%

Selling prices of top-end units could drop by up to 22% in months ahead

By Joyce Teo, Property Correspondent


PRIVATE home rents in Singapore are set to drop by up to 15 per cent next year, as the reality of a slowing economy hits home.

Property consultants say landlords are expected to become more flexible, given factors such as ongoing job cuts.

In a report released yesterday, Savills Singapore said the onset of a technical recession, coupled with a weaker employment market and slower expatriate arrivals, will contribute to the fall in rents.

So far, the impact on the local rental market has been limited despite rents beginning to come off their peaks, it said.

'The quarters ahead should, however, see a more entrenched rental decline as demand weakens in the face of a global economic slowdown,' said the report.

Given that the full force of the financial crisis erupted in mid-September, the rental property market has yet to feel the full impact, Savills Singapore said. In terms of top-of-the-market rents, known as prime rents, it expects a fall of 7 to 13 per cent next year.

Another consultancy, Knight Frank, is projecting a bigger fall of 10 to 15 per cent in average islandwide rents next year.

The Urban Redevelopment Authority recorded a 0.9 per cent dip in private home rents in the third quarter, the first fall after 17 quarters of growth.

'Some landlords are already cutting rents to retain tenants. We may see more aggressive cuts by landlords if more multinational companies cut their headcounts,' said Knight Frank's director of research and consultancy, Mr Nicholas Mak.

However, Savills Singapore's associate director of residential sales, Mr Patrick Lai, believes the fall in rents will not be big as there is still stable demand.

'There is still a steady number of expatriates coming in as Asia, particularly Singapore and Hong Kong, is where companies want to be now. To put it bluntly, we are benefiting from the meltdown in other parts of the world,' he said.

However, rents are more negotiable now as tenants have more choice, said Mr Lai.

This quarter, new supply entering the market includes the second tower of The Sail @ Marina Bay with 681 units, the 173-unit St Regis Residences and the 110-unit Paterson Residence, Savills Singapore said.

Next year, landlords in prime areas will have to contend with even more competition as more condos are completed.

Also, most expats are now on local terms, or arrange their own leases, and they usually do not want to use all their rental budget, said Mr Lai.

A property agent specialising in expat rents said she has not completed any rental deals since October.

'Last year, I was busy throughout the year. This year, it started to slow from January. It is so quiet now,' she said.

'Those who have advertised for a few months are willing to lower their asking rents but many others continue to hold on to the same asking levels.'

A renovated 1,650 sq ft unit at Pinewood Gardens at Balmoral Park is now available at $6,000 a month or $3.64 per sq ft - already lower than most other done deals at the development - but a potential tenant is willing to take it at only $5,000 a month or $3.03 psf, she said.

In a separate report, Savills Singapore said it expects prices of high-end and super-luxury homes - which are more vulnerable to the deteriorating global investment climate - to fall 22 per cent from the current quarter until the end of next year. Islandwide, the decline in sale prices over the same period is placed at a smaller 10 to 15 per cent, as mass-market homes catering mostly to upgraders should see a limited price fall.

Rental yields, however, have risen as the fall in rents is smaller than the fall in prices, said Mr Ku Swee Yong of Savills Singapore.

Knight Frank's Mr Mak added: 'Residential rents have moved up very fast in the past three years and they could come down just as fast.'

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