Feb 9, 2009

Office demand plunges

CAPITALAND Ltd, South-east Asia's largest property developer, said demand for Singapore office space plummeted last year as the global financial crisis knocked the city-state into recession.

'There was a big surge in demand for offices 10 or 11 months ago ... but it suddenly stops and falls off a cliff,' CapitaLand Chief Executive Liew Mun Leong said at a news conference. 'We know the market is softening and volume has gone down, and prices will be softening.'

The company's fourth quarter profit fell 88 per cent to $78 million from $675 million a year earlier, Mr Liew said. CapitaLand also plans to raise $1.84 billion by selling one new share for every two held by investors.

Singapore's real estate market is reeling from a deep recession and job losses in the financial industry, which helps support demand for the country's most expensive residential and commercial property. The economy contracted 17 per cent in the fourth quarter from the previous quarter.

Property prices rocketed between 2005 and 2007, luring some investors looking for a quick buck with speculative purchases.

Private home prices surged 31 per cent in 2007 as the economy expanded 7.7 per cent.

Last year, prices fell 4.7 per cent and economic growth slowed to 1.2 per cent. The government expects gross domestic product to shrink as much as 5 per cent this year.

'This was a classic property market bubble,' said Mr Tim Murphy, managing director of Hong Kong-based property investment company IP Global. 'By the end, you had taxi drivers trying to double their money in 10 minutes. That only leads to one thing - a crash.'

The government said last month that prices of private residential property dropped 6.1 per cent in the fourth quarter from the previous quarter, their steepest fall in a decade, and office rentals fell 6.5 per cent.

High-end residential and commercial property will likely fall between 15 per cent and 20 per cent in the first half and remain flat in the second as a deepening global economic slowdown undermines consumer confidence, Mr Murphy said.

'With the data that's coming out, I can't see anyone in Singapore who reads a newspaper being confident enough to buy real estate,' he said. 'People have been too frightened.'

Mr Liew declined to say how much he expected property prices to fall this year. -- AP