Banks see plunge in home prices in next two years

http://www.straitstimes.com/Money/St...ry_239497.html

May 21, 2008

Banks see plunge in home prices in next two years

New homes, rising vacancy rates, unsold condos and fewer rental deals cited as reasons

By Fiona Chan, Property Reporter


THE slowdown in the Singapore housing market has prompted two banks to predict a dramatic plunge in home values in the next two years.

In two starkly bearish reports, Barclays Capital and Credit Suisse have forecast drops of up to 40 per cent in home rents and prices, as demand and supply dynamics move in favour of buyers.

The reports, issued in the last two weeks, pointed to the malign cocktail of a flood of new homes coming on the market, climbing vacancy rates, a rising number of unsold condominiums and fewer rental transactions.

They also raised concerns about the possible dumping of units by speculators. Barclays said that should this happen, private home prices could slide 28 per cent to 30 per cent by 2010.

Credit Suisse predicted a possible 40 per cent drop in rents and prices. Its analysis showed that sub-sale prices recently started to dip at several developments.

Both banks also noted that developers were now more generous with price cuts, stamp duty rebates and agent commissions in an effort to move units. They warned that smaller developers were likely to 'break' first.

'Just six months ago, City Developments and a few others gave zero commissions to agents,' Credit Suisse said. By March, most were giving 1 per cent to 5 per cent, an increase of three to 10 times in just six months.

'When Singaporean developers start to reach out to agents with higher commissions, you know they are feeling the pain,' it said.

The pain is coming from slower growth in home rents and prices, as the effects of the United States sub-prime mortgage crisis takes its toll on market sentiment in Singapore.

Private home prices rose a smaller-than-forecast 3.7 per cent in the first quarter. Even then, Barclays analysts said this could have been boosted by a handful of high-priced transactions and 'may not reflect the depth of pessimism in the market'.

Sales and launches of new homes also fell sharply last month, extending the slump.

Mr Colin Tan, the head of research and consultancy at Chesterton International, agreed with the Barclays report about a correction in prices.

As more new homes are completed over the next few years, he said, rents will feel the pressure and prices will start to fall.

Not all property analysts, however, have such a gloomy take on the housing sector.

Kim Eng analyst Wilson Liew believes the oversupply situation may be overstated. While there are 32,000 units being built and 42,000 more in the pipeline, current market sentiment could help slow the rate at which the planned units come onstream.

'It is likely that most of these units would be deferred indefinitely until sentiment returns or when construction resources ease,' he said.

Developers could also keep lands in their landbank rather than develop them if there is no demand, suggested Macquarie Securities' head of Asean research, Mr Soong Tuck Yin.

Both he and Mr Liew believe the upcoming integrated resorts will give Singapore a boost and, while there may be a temporary weakness, home prices are unlikely to collapse.

Mr Soong also said developers had stronger balance sheets now than in previous market troughs, and the current low interest rates and high inflation could lead people to buy properties as a hedge against inflation.

The Credit Suisse report, however, said negative real interest rates - often touted as a driver for property purchases - had not historically helped home sales. It also said that even with construction delays, actual completions had usually come in higher than forecast.

[email protected]


http://www.straitstimes.com/STI/STIM...01_01_0001.jpg

Hi, can someone please post the Barclay's report here? Thanks.

The report is 2 weeks old and ST has chosen today to publish an article on it. Why?

And what bearing does today's ST article have on the Masterplan 2008? Which many people said will be out on Friday?

Actually the data is very misleading...

I have been monitoring residences @ evelyn for eg.

Last yr Feb 07, i went to the showflat, developers still got above 30th flr unit selling at $1.3 to 1.4k psf

Then, i suppose becoz of greed and fear..got one foreigner somehow kena conned to offer $2k for tat unit (below 30th floor) on Jul 07 shown on the newspaper today.

A sensible buyer at that time will not pay $2000psf, simply becoz if you make a calculation, it is a whopping 50% price hike within 5mths!!!
I can only say congrats to the seller...

Then, data shown that a unit above 20th floor sold at $1599psf ((1599-1350)/1350= 18% increase since feb 07. To me, its a fairly good deal becoz last yr overall price increase exceed 30%.

Since 2006 till now, property price had increased by 40-50% so far on average. I felt absurd when the banks predicted a 40% fall in price for the next 2 yrs...do they mean prices will fall back to 2005-2006 prices?

To me, I feel that with coming IR, F1 and youth olympic...I really cannot imagine price to be the same as 2005. I believe that a healthy property price growth will be 10% a year...last yr 30%++ increase is due to excessive speculation and not sustainable(bull and crash cycle caused by greed and fear). That is the reason why we are seeing those highly speculated condo price to corrects now.

I personally still very bullish on the SG property market (US subprime had somewhat prevented a bull and crash cycle.

For Eg, I am actually eyeing a studio unit at Southbank. Last yr March developer sold their last studio unit at around $800psf. So if I were to factored in a fair price increase of 15 to 20% increase for higher floor units...I will be getting one unit there once sellers r asking at around 950 to 1000psf. Now for high floor studio units, sellers are still asking above $1100psf. Hope more bad news will make them reduce their asking price to a more realstic level.

Any comments are welcome...

These bad news are for the speculators out there.To remind them that they can be burned .If you are not one of them just relax.The price will go up but the speculators are not welcome.If not more bad news released.

Hey Paperplate, how did you get the information about the "stupid" foreigner? Useful info. Are you expecting a 13-15% drop at "evelyn"? From $1100 to 950?

While 40% looks drastic, i bought a unit last year in Guilin View & had followed prices around the Bukit Gombak area (Madeira & Palm Garden) closely - the prices these developments had over the Jan 07 to Sep 07 period jumped 40% on average, on top of the gains made in 2006 & a bit from 2005. If one assumes that part of this run up is merely froth ie panic buying, speculation etc, then a retracement of say 20-30% is probably not too drastic in this context. That has been my call (a 20% decline) all the while and I think we are seeing that pan out. But i have to say 40% is not ruled out as things always overshoot their equilibrium. Mind you, we havent seen the worst of economic news hit the headlines yet. That's when sentiment of the masses gets affected.

Well everyone is entitled to their own view and who ever said that credit suisse and barclays were the best at predicting property price trends, to those who believe them, good for them, and for the rest and that includes me, I think they are painting worst case scenarios and which "may" or may not happen....

Sure some speculators will dump their units, but only bad units that might not even get rented, those in possession of good units will not just dump them, they can enjoy the yield if there are no buyers, so bottomline again buy carefully into any development and of course do not overstretch yourselves and you will be okay.....

Last but not least is the issue of sustainability, if rentals are downtrend (which i think not) and so are interest rates, we are even, it is still a good investment.

I do believe that prices will retreat back to the early 2007 period due to more 'cautious' buyers and 'sensible' sellers. This possibly means a 20-25% adjustment from early this year's peak. I also predict rising in prices again once US sub-prime crisis eradicates.

However, looking at the high rising commodity prices, construction costs and high enbloc prices the developers paid for, cannot really depict the scenario of them selling at a loss.

I would assume developers are sensible and smart enough to shelve some of projects and launches, while govt would regulate land sale such that land costs are not too high for FT and FDI, but not too low that crash the property market.

In the long run, I believe local properties are good hedges during stagflation, still viable for long-term investors and home seekers, but current sentiment has kept the speculators out.

FINALLY THE NEWS SPECULATORS DREADED TO HEAR IS OUT. THE FINAL NAIL HAS BEEN DRIVEN INTO THEIR COFFIN. BLOOD EVERYWHERE. PANICKY SPECKYS FLEEING. OH THE EXITS COVERED WITH BLOOD....

Quote:

---

Originally Posted by Pink4

Hey Paperplate, how did you get the information about the "stupid" foreigner? Useful info. Are you expecting a 13-15% drop at "evelyn"? From $1100 to 950?

---

it should go down to less than 700$. the drop is going to be dramatic. sell and run now before you are burned.

Quote:

---

Originally Posted by paperplate

Actually the data is very misleading...

I have been monitoring residences @ evelyn for eg.

Last yr Feb 07, i went to the showflat, developers still got above 30th flr unit selling at $1.3 to 1.4k psf

Then, i suppose becoz of greed and fear..got one foreigner somehow kena conned to offer $2k for tat unit (below 30th floor) on Jul 07 shown on the newspaper today.

A sensible buyer at that time will not pay $2000psf, simply becoz if you make a calculation, it is a whopping 50% price hike within 5mths!!!
I can only say congrats to the seller...

Then, data shown that a unit above 20th floor sold at $1599psf ((1599-1350)/1350= 18% increase since feb 07. To me, its a fairly good deal becoz last yr overall price increase exceed 30%.

Since 2006 till now, property price had increased by 40-50% so far on average. I felt absurd when the banks predicted a 40% fall in price for the next 2 yrs...do they mean prices will fall back to 2005-2006 prices?

To me, I feel that with coming IR, F1 and youth olympic...I really cannot imagine price to be the same as 2005. I believe that a healthy property price growth will be 10% a year...last yr 30%++ increase is due to excessive speculation and not sustainable(bull and crash cycle caused by greed and fear). That is the reason why we are seeing those highly speculated condo price to corrects now.

I personally still very bullish on the SG property market (US subprime had somewhat prevented a bull and crash cycle.

For Eg, I am actually eyeing a studio unit at Southbank. Last yr March developer sold their last studio unit at around $800psf. So if I were to factored in a fair price increase of 15 to 20% increase for higher floor units...I will be getting one unit there once sellers r asking at around 950 to 1000psf. Now for high floor studio units, sellers are still asking above $1100psf. Hope more bad news will make them reduce their asking price to a more realstic level.

Any comments are welcome...

---

In a downturn gambling activities would be hit first. All US casinos losing money. F1 and IR cant save. Price has to go down 40%. No question. Hold and test if you want.

Barclay's Mr Leong said his bearish calls for a near one third drop in value is not the worst case scenario but the most likely scenario. (I hate to think what the drop will be if it is worst case scenario.... jia lat ..arghhhh)

http://www.businesstimes.com.sg/sub/...80216,00.html?

Published May 22, 2008

Hopes of property market rebound fading

Uncertain economy, housing glut fears seen taking toll on developers


HOPES that a slowdown in Singapore's property market is temporary are fading as an uncertain economic outlook and a looming housing glut threaten to plunge the sector into a prolonged downturn.

Homebuilders such as CapitaLand, Keppel Land and GuocoLand have delayed launching new projects in the moribund market, taking a hit to first-quarter earnings as they hoped for a rebound later this year.

Prospects could be dented further in coming months if smaller developers face financing troubles and have to unload properties at massive discounts. Some have gorged themselves on expensive land acquisitions over the past two years.

With home prices expected to fall 30 to 40 per cent over the next three years, Singapore's developers could be badly hit and analysts may slash their earnings estimates further.

'This is the start of a multi-year price correction. Private residential property prices could easily fall by up to 30 per cent by 2010,' said Barclays Capital economist Leong Wai Ho.

Credit Suisse in a report this month saw rents and property prices falling even more steeply by as much as 40 per cent, and downgraded its investment recommendation for the sector to 'underweight'.

Warning signs have been flashing as first quarter 2008 sales volumes slumped to the lowest in five years and price growth slowed for two straight quarters, with concerns about a global economic slowdown and the US sub-prime mortgage crisis scaring off potential homebuyers.

Mr Leong said an impending oversupply will worsen the problem, with 66,000 new homes expected to be completed over the next four years, against forecast demand for 50,000 in the same period.

The three-month Singapore Interbank Offered Rate - a benchmark for mortgage loans - has fallen to near record lows below 1.3 per cent, but that may not be enough to revive buyers' flagging confidence, economists say.

'Negative real interest rates will be at best a cushion, rather than a boost to housing demand in the near term, although they could lift property demand if and when sentiment turns,' said Citi analyst Kit Wei Zheng.

'The worst is yet to come and price cuts are imminent,' said ABN Amro analyst Fera Wirawan.

BNP Paribas has flagged high financial risks for small developers including Bukit Sembawang, Low Keng Huat and Lian Beng, which have almost all their debts due within a year. Even major builders such as Allgreen, Keppel Land and GuocoLand could face difficulties after steep drops in profit in the last quarter as they launch fewer projects, analysts say.

Slower sales and rising costs could raise developers' gearing or debt-to-equity ratio to dangerous levels above 70 per cent, up from the industry average of about 62 per cent.

'We identify three developers, namely Allgreen, GuocoLand and Keppel Land, that could face some pressures on cash flow,' JPMorgan analyst Christopher Gee said in a report, noting that gearing levels could be pushed up to between 80 and 130 per cent.

The risk of price falls has been heightened by property speculators buying in recent years with little upfront cash, relying on a deferred payment scheme. The government scrapped the scheme last October in a bid to cool down the sector.

Analysts expect speculators will dispose of about 700 units on the cheap this year, and another 2,000 next year, as the properties near completion and instalments are due.

Some developers are still counting on home prices in the city state to rise for at least another year, as they see the market in the middle of an upswing even as the US housing market grapples with its worst downturn since the Great Depression.

'This is a temporary hiccup. We just had a boom starting in 2006 and it's usually a seven-year cycle,' property tycoon Kwek Leng Beng, who heads Singapore's No 2 developer City Developments, told Reuters. The property market will be supported by greater foreign investments as Singapore sees the completion of two casino projects and the influx of major events such as Formula One races and the Youth Olympics over the next few years, Mr Kwek argued.

But Barclays' Mr Leong said his bearish scenario, which calls for a near one-third drop in property value, already takes into account any boost resulting from these economic developments. 'It's not the worst-case scenario. This is the most likely scenario based on the numbers,' he said. -- Reuters

Can someone please post the Barclay's report?

I still can't see why the much touted Youth Olympics will bring anything good to the Singapore economy and real estate market. The Olympics is infamous for plunging hosting cities into great debt. Some may argue that we are hosting only the "Youth" version, but look at how much we are investing already by building the sports hub and the other related facilities.

A quick search in google and wikipedia and this shows up about Montreal 76.

"The Olympics were a financial disaster for Montreal, as the city faced debts for 30 years after the Games had finished. The Olympic Stadium, a daring design of French architect Roger Taillibert, remains a lasting monument to the huge deficit and as such is known as the Big Owe; it never had an effective retractable roof, and the tower was completed only after the Olympics. In December 2006 the stadium's costs were finally paid in full.[1] The total expenditure (including repairs, renovations, construction, interest, and inflation) amounted to C$1.61 billion. "

The same thing happened to Mexico, Seoul, and more recently Athens. I am sure the same crisis is going to hit Singapore.

Oh yes, one more thing. Do you guys really think the majority world will care much about the Youth Olympics?

Ask yourself, are you aware of where the previous Winter Olympics (second biggest IOC event) were held then?

You see my point?

BIG TIME DROP COMING. NEVER DID ANYONE THINK OF ZERO BID FOR HOTEL DURING THE CRAZY TIME LAST YEAR ALTHOUGH BOW WOW HAD WARNED.
OH CAN SEE MANY DROP PANTS AND FLEE.

Quote:

---

Originally Posted by lerevenant

I still can't see why the much touted Youth Olympics will bring anything good to the Singapore economy and real estate market. The Olympics is infamous for plunging hosting cities into great debt. Some may argue that we are hosting only the "Youth" version, but look at how much we are investing already by building the sports hub and the other related facilities.

A quick search in google and wikipedia and this shows up about Montreal 76.

"The Olympics were a financial disaster for Montreal, as the city faced debts for 30 years after the Games had finished. The Olympic Stadium, a daring design of French architect Roger Taillibert, remains a lasting monument to the huge deficit and as such is known as the Big Owe; it never had an effective retractable roof, and the tower was completed only after the Olympics. In December 2006 the stadium's costs were finally paid in full.[1] The total expenditure (including repairs, renovations, construction, interest, and inflation) amounted to C$1.61 billion. "

The same thing happened to Mexico, Seoul, and more recently Athens. I am sure the same crisis is going to hit Singapore.

---

Maybe that is why the YOG buildings will be used as students' hostel and staff quarters after the games are over. After all NUS will need new housing for student and staff after Gillman Heights go under the wreckers' ball. Multi-purpose.