What goes up will also come down

Source : Today - 4 Sep 2008

But analysts divided over 2010 ‘nightmare scenario’

DESPITE healthy profits reported for subsales in the first seven months of the year, there seems to be an uneasy air looming over the property market - in particular, the slowing mid- and high-end residential segments - these days.

The coffeeshop chatter found its way into public discourse last month when Wing Tai Holdings’ chairman Mr Cheng Wai Keung - known for his candid assessments of the property market - warned that the peak prices in 2006 and last year could lead to a firesale come 2010 when these projects are completed.

In effect, what Mr Cheng was saying as he announced Wing Tai’s second quarter results was this: Come 2010, only a spectacular economic recovery would stop the property market from being flooded with “expensive apartments”.

Records were set during the property bull run, with units at The Marq sold for as high as $5,100 per square foot (psf) and some at The Orchard Residences going for $5,500 psf. In the past 12 months, caveats were lodged for The Marq and Orchard Residences at prices averaging about $4,900 and $4,100 psf.

Analysts Today spoke to are split over the likelihood of such a “nightmare scenario” coming about, but they do rule out a repeat of the property market crash of a decade ago.

Typically, there would be a rush to offload units right before a project’s completion, when more payment instalments are due. The term “subsale”, often seen as a gauge of speculative activity, refers to secondary market deals in projects that have yet to receive their Certificates of Statutory Completion. This may be anywhere from three to 12 months after the project receives its Temporary Occupation Permit (TOP) - people can move in, pending completion of the final paperwork.

Apart from the global economic uncertainty and financial market turmoil that could hurt demand, the situation is made worse by the fact that developers, buoyed by the property fever, now have “too many projects on their hands”, said Chesterton International associate director Colin Tan.

Adding that the buzz surrounding the upcoming F1 Grand Prix and the integrated resorts was “overplayed”, leading to “unrealistic” downtown property prices,Mr Tan added: “We know the market is declining, but yet, developers are still launching their properties.”

Data from Savills Singapore shows that nearly 97 per cent of those who have sold private apartments and condos in the subsale market in the first seven months of this year have made profits. For those who turned a profit, the average gain per unit came to $417,563 or 36.5 per cent. Most of the sellers had picked up their units in 2004 and 2005.

The industry estimates that just under 30 per cent of private homes are owned by foreigners, including permanent residents.

Standing out against the doomsayers, Wakefield and Cushman managing director Mr Donald Han pointed out that the market is “still flushed with cash”.

He said: “If you look at Singapore’s wealth management industry, it’s still growing. Any investors looking to put his money into Asia will first take into consideration political stability and economic growth.”

Dr Chua Yang Liang, head of South-east Asia research at Jones Lang LaSalle, felt it was “difficult to call”, adding that the construction crunch has slowed the pipeline, mitigating fears of an oversupply of private homes.

Noting the “obliqueness” of the market, Dr Chua said: “Looking at it on face value, yes, there’s a potential (it could happen). For those who bought the properties under the deferred payment scheme (DPS), they may have overstretched themselves. But nobody knows the financial background of these buyers.”

In a bid to curb excessive speculation, the Government scrapped the DPS last October. But since then, banks including OCBC and UOB have rolled out similar schemes in the form of the interest absorption scheme (IAS) and the zero-instalment scheme.

Under the new schemes, buyers have to sign up for a bank loan for the property. Once the credit worthiness - based on factors including income level, credit history and repayment ability - is established, the buyer pays nothing more until the TOP is issued. Under the IAS, the developer pays the interest to the banks during that period.

Dr Chua noted that compared to the DPS, the new schemes allow banks to carry out more extensive checks on the prospective buyers before extending the loans.

But some fear a replay of the United States sub-prime woes, sparked by mounting defaulted payments. Mr Tan said: “The question is, how strict are the banks when they assess credit worthiness? The banks in the United States behaved irresponsibly; what is there to stop Singapore banks from behaving the same way?”

On its part, the Monetary Authority of Singapore has stepped up its surveillance on banks here, following the US sub-prime crisis.

Overall, the mid-market is experiencing a weak transaction volume, noted a recent OCBC report. Some new high-end projects “had not sold a single unit since launching”, it added.

According to latest official figures, rentals of private homes rose 2.5 per cent in the second quarter of this year, compared with 6 per cent in the previous quarter.

The first signs of trouble would be declining rents, said an analyst who declined to be named.

He added: “If I cannot sell my property for a good price, I can always fall back on rentals. But if rentals only give me, say, 1-per-cent yield, what’s the point? ”

In the words of property magnate Kwek Leng Beng, “what has gone up very high in a straight line will also come down”. Property owners are all hoping - with their title deeds and bank books in hand - that the slide in private home prices will not take the same steep path.