Less Property Speculation On US Sub-Prime Mortgage Woes

Source : The Straits Times, 16 Aug 2007

Investors are more wary of risks amid falling markets and global credit crunch

The property boom seems bulletproof against the sub-prime fallout in the United States and the share market mayhem for now, but speculators seem more reluctant to pick up properties.

Experts said real estate sentiment is not as bullish as a few months back. But that is partly because of the widespread feeling that the Government may intervene to cool what some thought was an overheated market.

The turmoil in share markets has reinforced that mood and introduced a greater dose of reality but experts feel the real estate market is still sound.

‘People are selling down the stock market but the physical property market’s fundamentals are intact,’ said Mr Ku Swee Yong, the director of marketing and business development at property consultancy Savills Singapore.

Yesterday, the Straits Times Index plummeted again with property stocks taking a beating. City Developments’ share price was down 50 cents to $14.10, while CapitaLand’s stock shed 35 cents to $6.90.

‘People are reacting to the stock market’s reaction to the sub-prime fallout,’ said Knight Frank managing director Tan Tiong Cheng. ‘There’s a domino effect.’

The problem is no one knows how bad the crisis is. ‘When you don’t really know what’s going on, it is best to delay any major commitments until the picture is clearer,’ said Mr Tan.

Some global funds, even if they have not been directly affected by the US sub-prime mess, may stay out of the Singapore property market for a while, industry observers say. Some offshore funds have had difficulty getting financing, said one, while others will continue to fund property investments but on more restrictive terms.

Genuine home buyers would not be affected but property investors would be more conservative in their approach, Mr Tan said.

Many investors and speculators have been ploughing the easy money made from the stock market bull run into real estate. The fear is that liquidity will be hit if the market selldown continues.

Savills’ Mr Ku said demand for property has exceeded supply so far, adding that there is a temporary lull partly because it is the seventh month and partly because of the stock market’s tumble.

Many developers prefer not to launch projects in a big way during the Hungry Ghost month because superstitious buyers will stay away.

Nevertheless, the perception of risk has risen generally with the global credit crunch, said OCBC analyst Winston Liew.

‘That could lead to higher interest rates, which would in turn hit the physical market,’ he said.

Higher interest rates would raise the borrowing costs of developers and buyers as well as affect asset values.

For now, with the mood turning more cautious, home owners involved in collective sales holding out for more money might think it wiser to sign on the dotted line, said Colliers International’s executive director of investment sales, Mr Ho Eng Joo.
Another expert said that if the US sub-prime fallout - which is not a major issue in Singapore - does lead to more caution while driving away excessive speculation, then the market will only become healthier.