A recovery, or a bubble?

Source : Today – 16 Jul 2009

Speculators or upgraders behind June’s record high

THE last time figures were anywhere near as high was the peak of the property boom in Aug 2007.

A surge in momentum in the stock and property market, already on an upward trend, last month saw private home sales by property developers hit a new high of 1,825 units.

But is this an accelerating recovery based on real fundamentals, or a developing bubble driven by speculative euphoria?

One sign that the confidence of the Singapore consumer has not returned in force is the continued weakness in the retail sector, where sales fell for an eighth straight month in May.

May’s sales index dropped 10.3 per cent from a year earlier, after sliding a revised 11.4 per cent in April, said the Singapore Department of Statistics yesterday.

So, why the rush to spend on property – and by whom?

Market watchers believe speculators are back in force, akin to the situation during the heady days some two years ago, though whether they pose a risk to the market yet remains to be seen.

Colliers Ms Tay Huey Ying, director for Research and Advisory noted “elements of speculative purchases although this has yet to reach a level that warrants concern”.

Industry veteran Nicholas Mak said it’s too early to say, as the strong buying sentiments have just kicked in. “You can’t tell if the buyers are holding onto the properties, are going to flip them or are going to live in them.”

Generally, analysts attribute the strong sales in June to improved sentiment, growing risk appetite and pent-up demand from home-buyers.

The narrow price gap between non-prime private residential projects and HDB resale flats, too, is likely to have tipped the hand of many HDB upgraders, while PropNex chief executive Mohamed Ismail cites the factors of “developers pricing units attractively and a relatively low bank financing rate”.

Jones Lang LaSalle’s Head of Residential Jacqueline Wong noted the return of interest “from foreign buyers seeking opportunistic buys”, with increased requests “to source for properties in prime areas from buyers in India, Hong Kong, Indonesia and Europe”.

The star development last month with the highest sales transaction was mid-priced condominium 8@Woodleigh, which saw 330 units going for a median price of $804psf.

Notably, more expensive projects in prime districts also saw better take up rates.

CBRE Research’s executive director Li Hiaw Ho noted the return of high-end transactions in excess of $2,000 psf.

“While there were only slightly over 20 such high-end transactions, compared to less than 10 in May, it is a sign that there are high-net-worth individuals out there who are prepared to buy investment-grade properties despite uncertainties in the economy,” he added.

A unit in the Ritz-Carlton Residences, for example, was sold at $3,404 psf while another in The Orchard Residences was sold for $3,299 psf. And seven units at The Orchard Residences were sold within the price range of $2,700 psf-$3,299 psf, noted Mr Li.

Should the economy continue to strengthen, the overall take-up rate for the year could hit 12,000 to 14,000 new homes, just under 2007’s record, said Mr Li.