Private housing crunch on the cards: JP Morgan

Friday, July 13, 2007
Keeping cool in a hot market
Analysts don't expect official measures to cool property sector

Joseph Yadao
[email protected]

THE Government may have raised the ante for the property sector with a string of warnings, but analysts don't expect official measures to follow any time soon to cool investor fervour.

A sense the Government remains sanguine about the market, and the impending supply of homes over the next year or so, are reasons the property sector has yet to feel the heat, they said.

Describing recent Government comments as "unprecedented" action to instill a note of caution into the booming market, JPMorgan said in a report this week that "whilst we believe the Government will continue to back up its cautionary statements with supply-side initiatives, we do not expect any official action to curtail demand."

"The Government can step in whenever they want to. They still see the market as okay, and they believe that it can take care of itself," said Mr Eugene Lim, assistant vice-president of ERA Singapore.

Since the middle of last month, comments to be cautious in view of a possible market correction, and supply to come have hit the headlines.

On Saturday, Minister Mentor Lee Kuan Yew weighed in, with a warning to keep property prices below Hong Kong's or lose competitiveness.

Singapore property prices have been climbing in the past two years, with recent purchases especially those in the high-end raising eyebrows. The Marq in the Orchard area sold at an average $4,137psf for the 21 apartments sold of its phase at end-June.

Would the Government step in, just as it did in the mid-1990s when it introduced various measures, including the introduction of a capital gains tax, to curb demand?

Some elements that drove the market then — wealth created by en bloc sales, a rising stock market — are also present in today's property sector.

But JPMorgan noted that "in the short term, there appears to be a supply crunch of available-to-occupy units … further up the pipeline are 57,908 units under construction or planning, of which 4,403 units were added in the 1Q07."

Expecting the supply-side to normalise in 12-18 months, the United States-based bank said "most of this inventory would only be brought on-line over the next year or two for completion post-2010, with 16,797 private residential properties due in 2009."

The figures also do not include supply from the Government land sale programme and en-bloc sales.

"Given that at least 7,500 units are not included in the development pipeline in our estimation, we think the jump in the change of the number of units in the development pipeline is yet to come," the bank said.

While mass-market housing prices are still below mid-1990s prices, the luxury and upper-mid property prices are above their mid-1990s levels, JPMorgan estimates show, suggesting Singapore's luxury market "are no longer such an apparent relative bargain as they were two or three years ago, especially in contrast to Hong Kong and some major cities around the world."

Mr Colin Tan, director of research and consultancy at Chesterton International, thinks that if the mass market enters its own bull run, pricing buyers out of the market, the Government could make a move.

There is some evidence of that happening: Prices of some suburban properties are soaring on collective sale rumours.

Transaction caveats on URA's website show a 1,636- sq-ft apartment at mid-priced Fernwood Towers in Marine Parade sold for $1.35 million last month, versus $770,000 for a similar apartment in September.

"They can base some preventive measures that are dependent on the quarterly price index. For properties in the suburban areas, the Government can release additional supply if that price index increases by, let's say 5 per cent, in a single quarter," said Mr Tan.

If potential buyers are convinced a steady stream of homes are coming to the market, "this would keep prices steady", said Mr Tan.