Savills sees over 20% drop in luxury home prices

Source : Business Times - 21 Nov 2008

Announced forecast for period ending 2009 grimmest yet by any consultancy

Savills Singapore is predicting price drops of more than 20 per cent in the next five quarters for high-end and super-luxury private homes.

This would follow declines of 14.3 per cent and 12 per cent respectively for these two segments in the first nine months of 2008 from the peak in Q4 last year.

The forecast is probably the grimmest announced by a property consultancy here - although some rival firms BT spoke to yesterday said that privately, they have similar estimates.

Research analysts at stockbroking houses/banks have already been making downbeat pronouncements, predicting declines of about 30 per cent or more for luxury home prices byl end-2009.

In its report yesterday, Savills said that the high-end and super luxury segments are more vulnerable to the deteriorating global investment climate. The average capital value for high-end (non-landed) residential homes fell to $2,065 per square foot in Q3 2008, 4.6 per cent lower than the preceding quarter and 14.3 per cent below the Q4 2007 peak of $2,410 psf.

In the super luxury league, the average capital value slipped to $3,240.40 psf in Q3, down 5.2 per cent from the preceding quarter and 12 per cent lower than the Q4 2007 figure.

Savills expects mass- market home prices to fall 5 to 8 per cent in the next five quarters - arguing that a price drop in this segment will be cushioned by continued support from HDB upgraders and other buyers picking up private homes for their own occupation.

The fundamentals of the mid-tier and mass-market segments are stronger today than during the Asian Crisis downturn, partly due to Singapore’s more open immigration policy, Savills said.

Permanent residents have accounted for 14.3 per cent of private home purchases (excluding ECs) in the first nine months of this year, up from a 12 per cent share in 2004. PRs are likely to become a strong demand driver in the residential market in the coming months, Savills reckons.

Foreigners (including PRs) had 24.8 per cent share of private home purchases (including ECs) in the first nine months of 2008, down from a 25.9 per cent share for the whole of last year but still ahead of sub-20 per cent shares between 2000 and 2004.

In Q3 2008, a total of 4,287 caveats were lodged for private homes (including ECs), covering both primary and secondary markets - 9 per cent higher than the 3,934 caveats lodged in the preceding quarter.

However, the total value of private homes transacted edged up only slightly to $5.68 billion in Q3 from $5.62 billion in Q2.

‘The average value of each unit transacted decreased, as evidenced by the very successful sales at mass market projects such as Livia and Clover by the Park. The proportion of transactions in the luxury and super luxury sectors dropped compared with mass market, as rich investors were more cautious about big-ticket purchases,’ said Savills’ director of marketing and business development Ku Swee Yong.

The average monthly rental value for high-end non-landed homes tracked by Savills contracted for the second consecutive quarter, slipping 3.6 per cent quarter-on-quarter to $5.62 psf in Q3.

This followed a 1.2 per cent drop in Q2. ‘For full- year 2008, we expect prime rents to ease 4 to 6 per cent and fall a further 7 to 13 per cent in 2009,’ Mr Ku said.

Tenants may now seek more competitive rentals, softening the market.

‘So far, the impact on the local rental market has been limited, despite rents beginning to come off their peaks. The quarters ahead, however, should see a more entrenched rental decline as demand weakens in the face of a global economic slowdown,’ Mr Ku said.

Savills also said that 10,923 leasing deals were recorded for private homes (excluding ECs) in the July to September quarter this year, the highest Q3 figure since 2000.

The leasing volume for Q3 2008 was up about 20 per cent from the preceding quarter and 25 per cent above the figure in the same period a year ago.

The strong leasing volume may have been contributed by a seasonally active Q3 that coincides with the opening semester of some international schools, as well as displaced tenants from collective sales completed last year, downgrading from high rental units to more affordable ones, and completion of new projects with attractive facilities and competitive rents.

However, Savills expects rental demand drivers to weaken in coming quarters. Savills’ residential leasing head Patrick Lai says: ‘The inflow of expats is expected to slow down, although we’re still seeing an influx of foreign talent into Singapore, particularly in the healthcare, pharmaceutical, R&D and logistics industries.’