August 17, 2009 Monday

Mass-market home prices 'at 2007 peak'

Residential prices may fall about 20%: Analyst

By Francis Chan

ANTI-SPECULATIVE measures, falling rental yields and ballooning supply may drive residential property prices down by about 20 per cent, says an analyst.

Sounding a contrarian view that runs against current sentiments, RBS Singapore analyst Fera Wirawan warned that prices of some segments of the market have risen to 2007 peaks amid a strong upswing in buying levels.

Based on her analysis, prices of mass-market homes, or low-end private properties, are now at peak October 2007 levels, while prices of mid-tier and high-end homes are just 8 per cent and 22 per cent off their peaks respectively.

With prices surging 16 per cent to 26 per cent in recent months, the residential property sector may have peaked, Ms Wirawan cautioned.

'The residential sector recovery was initially driven by pent-up demand and cheap capital values, but we now see speculation in all residential segments, particularly the mass segment,' she said.

Average selling prices (ASPs) at recent property launches are 30 per cent to 80 per cent above the ASPs of nearby projects. This is markedly higher than the historical average of 20 per cent.

'Capital values have been rising in the face of falling rents and a full supply pipeline, a phenomenon we attribute to low average mortgage rates of 2 per cent.'

She noted that the strong residential volumes were triggered by Frasers Centrepoint's launch of the mass market Caspian project at an affordable $580 per sq ft in February, which attracted a high take-up owing to pent-up demand in the mass residential segment.

The positive sentiment from the sale of Caspian units quickly filtered through to the mid-tier and high-end segments.

This frantic level of buying, in annualised terms, almost matched the record number of new homes sold by developers in 2007.

Property developers here sold more than 7,000 private homes in the first half of this year, double what they sold in the same period last year.

When annualised, sales are only 2 per cent short of the record 14,811 sold in the 2007 boom year.

The low-end segment performed the best in the first three months of this year, contributing 63 per cent of the 2,552 primary units sold.

The second quarter, however, saw a change, with 40 per cent of the 4,552 units sold represented by the mid-tier segment, followed by 31 per cent in the high-end segment.

The broad-based recovery has fuelled a sharp rally of property counters such as City Developments and SC Global Developments.

The Singapore FTSE ST Real Estate index, which tracks Singapore-listed property stocks, has doubled from its March lows.

With increasing speculation, worsening affordability, declining rental yields and plentiful supply in the property development pipeline, prices are likely to cool, said Ms Wirawan.

'The Government is watching the market and could implement anti-speculative policies if speculation in the market goes on unabated,' she said. 'We expect prices to fall 10 per cent to 20 per cent in the residential sector over the next 12 months.'

National Development Minister Mah Bow Tan said last month that signs of speculation are re-emerging in the property market and stressed that the Government is monitoring the the situation closely. His comments came after speculative pricing practices began to emerge late last month, especially in the mass-market segment.

Ms Wirawan pointed to the sale of Centro Residences, a mass-market 99-year leasehold project located at Ang Mo Kio, which was sold at between $1,100 and 1,200 psf.

That price, she said, was close to the price of a bulk purchase of Sui Generis, located at Balmoral Park, a prime area, which sold for $1,260 psf.

Industry players generally agree that it is not sustainable to price low-end properties at about $1,000 psf.

The Government recently made cautionary statements owing to concerns that such homes may become unaffordable to the mass-market home-buyer.

The warning, however, appeared to have fallen on deaf ears as property launches continued to attract throngs of buyers, including many Housing Board upgraders, over the first two weekends of this month.

DMG & Partners Securities analyst Brandon Lee said that he expects 'residential sales momentum to continue', while OCBC Investment Research analyst Foo Sze Ming said demand in the mass-market segment was more sustainable.

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