Property Boom : Will It Last?

Source : The Business Times, 25 June 2007

Is the property boom for real or is it a bubble? What does this say about prospects for the overall economy?

STRONG economic fundamentals, regional stability and positive economic performance in Asia have provided the environment to support continual investor confidence in Singapore.

While increases in prime residential and office nominal values have been substantial over the past 12 months, there was little growth over the nine years before. The effects of inflation over this period should be taken into account. High-end residential prices (in real terms) have increased 4.5 per cent per annum since 1997. This growth seems moderate when compared to Singapore's 10-year average economic growth rate of 5.24 per cent and growth in prime residential properties in other global cities during the same period.

After removing annual inflation of 0.73 per cent, average prime office rent of $11.80 psf has only shown an annual real growth of 0.6 per cent over the same 10-year period. Singapore's prime office rent, we believe, is still competitive compared to other global cities such as London, Tokyo and Hong Kong.

The fundamentals in 2007 are different from 1997s. Asia has restructured, with Singapore emerging in a much stronger position than before. Its in-migration friendly policy and pro-business tax structure further coalesce to support the demand for Singapore properties. Barring unforeseen circumstances, the outlook for the property market remains positive.

- Christopher Fossick Managing Director - Singapore and South East Asia Jones Lang LaSalle

Looks like the real thing

SINGAPORE's economy is still slated to continue growing, year on year. With high-profile projects like Formula 1 and the integrated resorts leading the way, Singapore is gearing towards a level of global reach and relevance never before seen in its history. That is a development that is here to stay.

Because of the economic progression, the subsequent proliferation of property and its demand should be expected. The truth is, ever since its precipitous decline in 1996, the property market has not fully recovered until now. However, the reason why people are jittery is that property prices are recovering faster than most can adjust to.

Healthy moves like the release of land, as well as new developments in the pipeline, will hopefully help to cool the market. Demand needs to be eased so that the property market is steered into a more gradual, controllable and ideal growth. Then, we will see that the higher prices we are witnessing now are just one aspect of a promising economic future.

- Annie Yap CEO The GMP Group

THE property market is indeed flying.

Private residential property transactions with caveats lodged revealed higher transacted prices for districts 4, 9, 10, 11 and 15. These are the prime moving districts now, and I believe there is still a lot of room for prices to move up. Why? For every key event listed below, I expect an above-average movement of $100 per square foot in the districts mentioned to move alongside in the following years:

1. Year 2008 - First in the world! F1 night racing is coming to Singapore. The world will get invited to Singapore, interact with Singapore and invest in Singapore.

2. Year 2009 - First integrated resort to be completed with US$5 billion flowing into Singapore filled with the first wave of tourists which include participants in the Business Travel, Meetings, Incentives, Conventions and Exhibitions (BTMICE).

3. Year 2010 - Second integrated resort to be completed, with another US$5 billion flowing into Singapore filled with the second wave of tourists coming from destinations beyond the nine-hour flight radius of Singapore.

4. Year 2011 - General Election in Singapore: the government will introduce goodies to cultivate goodwill amongst voters to elect the next generation of leaders.

5. Year 2015 - Singapore celebrates her 50th birthday, which will fulfill our Prime Minister's vision for Singapore to become the jewel of the region.

If not now, then when? If not us, then who? Let's do our best to keep the property market flying high!

- Clemen Chiang CEO Freely Business School

I WISH I had a crystal ball to predict the property market. Not for gain or investment, but because I am caught in this boom just when I needed to consider a change in my residence. So I have been looking at it as a consumer.

Most of the conversations I have had these days is mainly about property prices, en-bloc deals, lack of units available and the what-if's. From meeting and chatting with various people, I gather most feel that there is still room for the per-square-foot price to move upwards. They give me the feeling that they are confident the economy is strong and sustainable.

The anticipation of the IRs does give the whole frenzy some kind of timeframe. The F1 buzz does give it an added layer of confidence. The ST Index keeps hitting record levels.

In my opinion, if no major disaster happens, I believe the property market and economic growth look likely to continue.

- Joey Chang CEO/Founder AXS Infocomm

THE property market will stay robust at least till 2012. The growth in the property market is thus backed by economic fundamentals of rising demand, income and jobs. If the overall economy continues to do well, the property market boom is likely to be sustained. Firstly, the Singapore economy has picked up and grows strongly. Our IR project further stimulates economic activities in the next few years. For the next five to 10 years, Asian economies will remain vibrant due to the Olympics 2008 in China, and the rise of Vietnam and India.

Most of the global investments will focus on the growth of the Asian economies. Singapore, being one of the financial centres and a politically stable country, will definitely reap the boom opportunity. Although the property boom reacted aggressively for the past one year, it has not reached the peak yet. I would think that the booming trend will still continue to be steadily up at least till 2012.

- Dora Hoan Group CEO Best World International Ltd

DRIVEN by excess liquidity, asset prices around the world have increased in value simultaneously since 2002. The property boom in Singapore started about a year ago, largely underpinned by the high-end segment, through the en-bloc sales fever. A property boomrequires cheap finance, excess savings in Asian economics, low long-term bond rates and an integrated international financial system. Money supply and credit must continue to grow at an accelerating rate in order to sustain the expansion.

There is no bubble ready to burst, as the boom is supported by a strong economy and political leadership, increased immigrants and foreign talents, perspectives of the IRs and a global city in the making, and a better working relationship with neighbouring countries.

- Tan Kok Leong Principal TKL Consulting

FOR those of us who saw the bubble deflated in the mid-90s, the thought of a bubble looms large on the horizon - and the speed at which prices have gone up seems to bolster this argument.

However this time around, besides the usual participants in the Singapore property market, there is participation from the Middle East, India and China which, together with good worldwide economic growth, excess liquidity and low interest rates, may make markets a bit more robust than before. There is also the IR factor plus the Formula 1 race coming into Singapore next year.

Of course the boom in the property sector brightens the prospects for the overall economy.

The downside will be that the increasing rents that will accompany the property boom will push up the cost of doing business in Singapore, and there may be some businesses in Singapore which may find the cost of doing business out of and in Singapore prohibitively expensive. This is a call that they have to take.

- Vijay Iyengar CEO Agrocorp International

THE current property boom is a natural phenomenon in the economic cycle in Singapore as capital inflows from overseas soak up the prime real estate.

The impending opening of two integrated resorts in Singapore is a key booster to the property boom. Coupled with the government announcement to bolster the population from current 4.5 million to 6.5 million by 2020, this has spurred the developers?confidence of stepped-up demand for housing and office space as well as the increase in MRT and expressway networks.

Barring any unforeseen circumstances, we are not expecting any bust in the property market in the next five years. If any, it would merely be a technical correction.

I am confident that by 2015, when we celebrate the golden jubilee of the independence of our republic, our global city state will be among the top cities in the world.

- Derek Goh Executive Chairman / Group CEO Serial System Ltd

IT's been said that growth in urbanisation, along with the emergence of real estate investment trusts (Reits), will be one of the defining characteristics of the property sector in Asia over the long term. And now, particularly with the imminence of the Bay area projects, Singapore's luxury property market has received yet another rejuvenating shot in the arm and will no doubt continue its bull run into the foreseeable future.

Like any staple industry, property and construction are subject to cyclical swings between peaks and ebbs, but as our economy fortifies itself from strength to strength and the peoples' spending power increases over the years, real estate developers can expect more high-end sales for a sustainable period of time, which readily reflects financial health and also brightens the general outlook.

- T Chandroo Chairman/CEO Modern Montessori International Group

THE soaring property prices are driven by high demand for land and office space due to the influx of foreign investors. Given such strong fundamentals, the current property boom is likely to be for real rather than a mere bubble.

Worth highlighting is the potentially adverse impact that this could have on local SMEs, including those which are providing value-added services to our community, such as childcare and eldercare. As such, the government should help ease the current skyrocketing property prices and in this respect, it is encouraging to note that more state land is being released.

- Sam Yap Executive Chairman Cherie Hearts Child Development Pte Ltd

THE property boom in Singapore is expected as the country will be a place of choice for many rich people in Asia. Multi-millionaires throughout Asia will love to have a residence here. The boom is real and not yet a bubble. The boom is not due to local needs but more from buyers abroad. Properties in the UK shot up for the similar reasons. Many rich English-speaking people throughout the world love to live in the UK too.

The prices may appear to be high in Singapore, but they are not that high compared to prices of properties in London, New York and Hong Kong. The property boom will help to generate the growth of the Singapore economy. It will not affect locals who will enjoy the help of the government in building homes for them at reasonable prices.

- Ng Kong Yeam Group Executive Chairman Sino-America Tours Corporation Pte Ltd

WHETHER the property market can be sustained depends largely on the purchasing power of buyers and on government intentions.

Of late, money flowing in from oil-producing Middle Eastern countries and noveau riche Chinese has made credit cheaper. Singapore is seen as a safe haven to park their money, and buying into properties in an improving economy is one way to preserve capital.

I see the market having some legs and will be strong in the short term; thereafter if the market goes up too high, the government may step in to cool the market. High property prices affect the population's ability to produce more babies.

- Tan Ser Giam Chairman Eastern Navigation Pte Ltd

THE Singapore economy has been recovering for the last couple of years since the Sars outbreak in 2003 put a severe dent on the economy. On the other hand, the Singapore property market started recovering only in the last year or so. As such, I tend to believe that the Singapore economy has built a strong economic base to justify the current property boom. At the same time, the next few years will see huge investments in IRs, etc, and the re-inventing of the Singapore economic model.

The government has already upped the target population to 6.5 million. All this means that there will be more people - more expatriates, more immigrants and more high-net-worth individuals - coming to this island in the next few years. Of course, in any type of asset inflation, speculation cannot be avoided, and this is likely to form a part of any property boom. However, more importantly, there are likely to be many more genuine investors and home buyers who will be attracted to invest and to live in Singapore, and to be part of the new Singapore economic story.

- Wee Piew CEO HG Metal Ltd

Need for caution

IF PRICES skyrocket too rapidly, or if we fail to balance the variables contributing to the economy, the property boom could potentially be a bubble.

Singapore's property market is artificially buoyed by foreign investors from countries such as Indonesia and Thailand leveraging Singapore's stable and growing economy. The last time the property bubble burst was due to the financial crisis, which removed this foreign investor support. This time round, we are not expected to experience the same monetary meltdown to threaten the boom.

However, what we are seeing is an unrealistic expectation from sellers that their properties will keep achieving the stellar heights that everyone is talking about. With respect, perhaps an element of Kiasu-ism?is clouding expectations. This causes an inconsistency in the market and is generally not positive. Growth is a positive attribute to any economy and it is much better for it to be based on fundamental economics.

When the different variables in an economy do not match up, a boom could well become a bust. We are already seeing rising rent rates, against a disproportionate rise in wages, becoming a deterrent to overseas working professionals. I trust the boom we are experiencing will plateau off and we will return to a steady positive growth period instead.

- Charles Reed CEO interTouch

ECONOMIC and infrastructure fundamentals support the Singapore story, and with it the long-term real estate market as a solid asset class for investors. Current speculation, however, is at a runaway pace. While I do not necessarily believe that a crash is looming, it will be inevitable that international companies will take a closer and more critical look when assessing the costs of operating in Singapore.

If unchecked for long, it may drive certain firms away, to the detriment of Singapore. International professionals may also be unwilling to pay inflated rentals, nor do they wish to move every two years due to exorbitant rental increases - and all this because of speculators, many of whom do not even live here? Is that what Singapore wants?

- John Jessen Co-Founder and Managing Director Smith & Jessen

IT's a bubble. While Singapore's economy is sound, recent real estate price increases have more than closed any valuation gap and brought prices more than in line with their fair market value that is reflective of supply and demand.

Why is it a bubble?

1) too many success stories of people flipping property within less than a year,

2) too many people buying without having seen the property? and

3) still supported by low interest rates - people are in search of alternatives.

Points 1) and 2) are pure signs of speculation and who doesn't know about the deep Chinese culture of always hunting for a deal? It works as long as more people join in - but once the first stumbles the whole house of cards will come down. I am waiting for that day - and then might buy. But for ownership, not for speculation.

- Berthold Trenkel Chief Operating Officer, Asia Pacific Carlson Wagonlit Travel

THE lethal combination of the record-breaking rise of the stock market and the ongoing en-bloc fever will continue to drive property prices northwards. This strong push in property prices is indeed a direct reflection of the stellar performance of the stock exchange and the buoyant economy. However, as with all bull runs, what goes up must come down. With more projects scheduled for completion in 2009, there is bound to be a slight correction. The slight correction will however not be a sharp drop as observed in the interim years following 2001.

I am concerned about the effect of having mainly foreign funds that are driving this steep surge in property prices. While we are all in awe of the latest blockbuster transaction pricing reported daily in the papers, we must not forget that the majority of Singaporeans still stay in government housing and this will not have much effect on them. En-bloc fever is also slowly destroying close-knit communities when most of the affected residents are forced to stay in another part of the island, as they will not be able to afford a similar place in the same area any more.

- Benjamin Low Managing Director, Southeast Asia & India Secure Computing

THE prices of property have been shooting up so fast that many ordinary middle-class Singaporeans thinking of upgrading or buying a new home are now priced out of their dream home. Developers of new property projects have found good demand from foreigners and high-net-worth Singaporeans. This all bodes very well for the developers, the contractors, the furniture and furnishing suppliers, and the economy. The upside is that the economy is growing, people are optimistic, and everyone gets a share of the pie.

The downside is that people who are not savvy property players get drawn into this feeding frenzy and may get burnt. This property boom is really a bubble created by savvy developers and people with deep pockets. Having seen the boom and bust of the property cycles in the past, I would advise people who think they can get a slice of this action to be extremely careful and to keep their ears close to the market.

- Fong Loo Fern Managing Director CYC The Custom Shop Pte Ltd

THE current property boom is a testament to the strength and resilience of the Singapore economy having recovered dramatically from the previous downturn. However, unless you're a property developer or a landlord, the boom can have an adverse effect on most businesses, due to rental being a major constituent of operational costs. From services companies to retail and manufacturing, the property boom is increasing the cost of doing business in Singapore, and if left unchecked can hamper the competitiveness vis-a-vis our neighbours in the region.

Across the board, the rise in rents will most likely trickle down to be passed on to consumers. Consumer spending may be hit too as consumers scale back on big-ticket purchases or defer purchases. Ultimately, if left unchecked, inflation may creep in and become a dampener on the overall economy. Hence, the recent move by the government to closely monitor the price movements in the property sector for any possible signs of overheating is applauded.

- J Anton Ravindran Group CEO & Co-Founder Genovate Solutions

THE property market has always been cyclical. Having said that, what is important is not to get swayed away, but rather to remain prudent and invest sensibly.

Globally, Singapore has been ranked as the 14th most expensive city to live in. While this is a strong indication of a positive and booming economy, it also implies that with the rising cost of living, Singapore may eventually lose its attractiveness as a city to work and live in.

- Lars Ronning President, North & South East Asia, India, Australia & New Zealand Tandberg

SINGAPOREANS will have to brace themselves to live with an appreciation in property prices for at least another six months to a year, and for those affected by en-bloc sales, to determine how to get the best out of this trend for another acceptable roof over their heads, moving forward.

While the flurry of property transactions will fuel the already booming economy, my concern is the economy becoming overheated, driving up the costs of living and making it untenable for the ordinary man in the street. At the same time, there is the burgeoning prospect of our economy becoming uncompetitive, with all the concomitant negative effects of investments going elsewhere and ensuing unemployment.

The government can try to regulate the property market to prevent this, but I feel the government can strengthen its approach by enforcing stricter regulations in a timely manner against rampant speculation. However, its hand is weak in relation to high-end luxurious properties, whose demand is price-inelastic, and so long as there are people willing to pay, this will continue to artificially fuel the steady increase in prices.

- Lim Soon Hock Managing Director Plan-B Icag Pte Ltd

MY CONCERN, if I were in the Singapore property market, would be understanding what is driving this boom. There seems to be a lack of fundamental economic criteria that can explain it. My second concern would be the size of the Singapore market - it is not big enough to sustain this growth. Having said that, I wish I had invested early on in the boom so that I would have had time to make some money!

- Ross Wilson Managing Director, Consumer Products and Services, Apac Region Trend Micro (Singapore) Pte Ltd