Published June 24, 2008

Singapore property market approaching peak: report


SINGAPORE is still a safe haven for property investments but a market peak is approaching, Pacific Star says in a recent report.

The Singapore-based property group is most bullish on the retail sector here, recommending that investors add to investments in that segment. The residential and office sectors, on the other hand, are rated 'neutral'.

In the same vein, OCBC Investment Research reiterated its 'neutral' view on the residential sector here in a June 12 report.

According to Pacific Star, the retail market here is tightening. Vacancy rates have fallen to levels not seen since 1993 and rents continue to climb slowly, with an increase of one per cent in Q1 this year, after a 0.6 per cent rise in Q4 2007.

Retail spending is expected to increase in line with growing tourism and rising incomes.

'Marketing agents report that Orchard Central and Ion Orchard, two prime (upcoming) shopping centres in Orchard Road, are attracting strong rental enquiries from retailers that currently do not operate in Singapore,' Pacific Star's report said. 'Rents at Ion are expected to significantly surpass current prime retail rents.'

For the office sector, the current demand-supply imbalance is expected to support rents till 2009, said Pacific Star. 'Office demand is still firm with leasing agents lamenting the lack of available space rather than a lack of enquiries, although the number of enquiries would have fallen somewhat.'

But an above-normal supply of office space will put pressure on rents from 2010, even if growing demand from the services sector prevents any excessive correction, it said.

In the residential segment, Pacific Star expects the current stupor to continue, as there are few catalysts for the rest of 2008. It believes prices and transaction volumes will continue to soften for the rest of the year.

However, the initial catalysts for recovery are expected in 2009, when Singapore's economic growth is expected to exceed that of 2008, according to Pacific Star.

The recovery will be fuelled by immigration and higher incomes that will make it more affordable for Singaporeans to buy mid and high-end private homes, it said.

In a report on the residential market here, OCBC sounded a warning, saying past trends point towards another price correction over the next few quarters.

On the other hand, interest in mass market properties should come back, said OCBC.

'Given that only five projects with total of 1,139 units are expected to be launched in the outside central region between Q2 2008 and Q3 2008, this should ease concerns of oversupply and drive the take-up rate higher over the next few quarters,' analyst Foo Sze Ming noted.