Now, trough ahead

Source : Today - 3 Oct 2008

After 4-1/2 years, prices dip 1.8%; turmoil may force owners’ hands

THE tide has finally turned, in one analyst’s words. After more than four years, or17 consecutive quarters, of growth since early 2004, the prices of private homes posted their first decline of 1.8 per cent.

And coming as this does amid a period of global financial turmoil, the flash figures herald challenging times ahead for home owners - especially those whose purchases will be completed next year.

Between July and September, the Urban Redevelopment Authority’s private residential property price index fell 1.8 per cent, after a 0.2 per cent increase in the previous quarter, according to flash estimates. This, even as public housing resale prices held steadily to growth of 4.2 per cent.

The drop comes as little surprise. “Market sentiment amongst home buyers has been deeply affected by the on-going US financial crisis, slowing economy, plunging stock market and fears of a global recession,” noted ERA Asia Pacific’s assistant vice president Eugene Lim.

The question now is, how gloomy things ahead will get, and when the trough will come. Mr Lim expects the immediate future to be “bumpy”. Knight Frank’s director of consultancy and research Nicholas Mak anticipates that any gain in the first half would be given up in the second half.

More pessimistic is Chesterton International’s head of research and consultancy Colin Tan. Expect private property prices to dip by at least 5 per cent in the fourth quarter, in an “acceleration” of the decline, he says. The deceleration of the URA’s index - which hitherto had been picking up speed, quarter on quarter, since the first quarter in 2004 - began back in the last quarter of last year. With the backslide now begun, the situation could get uglier next year, with 13,400 private homes expected to come on stream as new developments are completed.

Many buyers of these private homes have purchased their properties on deferred payment schemes and “have been hanging on in the meantime,” observed Mr Tan. The completion of the purchases, however, would mean that the buyers have to start paying for them.

With the current financial turmoil threatening to spill into the next year, these buyers may not be able to afford the homes. This could be further exacerbated by a credit crunch, as banks tighten on lendings and increase interest rates. Should the buyers choose to lease out their assets, good yields may elude them given the glut of new homes.

Mr Tan notes that the third quarter is the time that expatriates choose to sign their leases, after returning from summer holidays. With the precarious global economy, fewer expatriates may enter and stay on in Singapore.

The last resort - sell.

If things are bad enough, panic selling could ensue. It already has begun, even if cases are far and few in between. In August this year, property tycoon Kwek Leng Beng acknowledged that there have been some cases of panic-selling in the secondary high-end market.

SUBHD: ON THE BRIGHT SIDE …

Despite all this, there is a upside to the property downturn, Mr Tan believes. “It is usually a good sign when property prices follow the economic fundamentals. If prices continue to increase despite a downturn, that is a deviation and the market could eventually head for a collapse,” he said.

A gradual decline would also augur well for a soft landing in a downturn, as “everybody has time to adjust if it’s coming down gradually”.

For the serious homebuyer, it’s also all good news.

Lecturer Isabel Chew, who has been shopping for a private apartment for the last few months told Today: “I’m glad that prices are finally dropping. I will look around for a good bargain and if not, wait for a few more months.”

Unusual projects may also still show “sparks of activity” if interesting projects are launched, said CBRE Research’s executive director Li Hiaw Ho, citing Marina Bay Suites, Sentosa Quayside and The Arte.

With URA figures showing that the luxury and high-end market sales have dipped, well-priced good quality projects below $1,000psf have seen good market response, noted ERA. “Perhaps the on-going financial turmoil has prompted investors to take their money out of intangible investments and park them in tangible investments like properties,” said Mr Lim.

Projects that sold well in Q3 include Livia at $650 psf, Beacon Heights at $900 psf and Concourse Skyline at $1,500-1,800 psf.