Stock Declines May Hurt Certain Real Estate Segments

Source : The Straits Times, 20 Aug 2007

SOME say the fortunes of the stock and property markets are inextricably linked.

Property industry watchers say, however, it is too soon to tell if the recent stock market volatility - and a feared global credit squeeze - will spoil the party for the booming property market.

‘We’re waiting to see how severe and how prolonged the volatility will be,’ said Ms Tay Huey Ying, director of research and consultancy at Colliers International.

At least one economist, however, believes that there will be a definite, although gradual, impact on sectors that have seen a high level of foreign participation - high-end homes and offices.

Citigroup economist Chua Hak Bin said the recent volatility ‘will slow down property market transactions, especially for the luxury end of the residential segment’.

The recent sharp run-up in home prices in the luxury end of the market has been supported by ‘generally very favourable liquidity conditions’, but volatility in the stock market could dampen this trend, he said.

He added that so far this year, about 28 per cent of home purchases have been made by foreigners - a segment ‘more sensitive to global market conditions’.

In addition, over the last six months, ‘about 9 per cent of residential transactions were company-related purchases, and chances are, these companies are going to face tighter credit conditions’, he said.

Dr Chua expects demand for commercial space to also start cooling down. He said financial institutions - a big driver for the office demand - may scale back their hiring.

He added, however, that the impact on local home demand is likely to be limited for now. ‘Ultimately, local demand will be more conditional on jobs, on generally the overall economic growth and wage gains,’ he said.

Colliers’ Ms Tay agreed, saying if the stock market volatility ends soon, the property market may not feel any pain at all.

‘In the short term, the primary sale market will remain active, as we’ve seen for projects like Soleil @ Sinaran.’ About 80 per cent of the development’s 417 units were sold in only two weeks.

‘But the secondary sale market may slow down a bit, as people with no urgent need to buy may refrain from committing until they see the full impact of the sub-prime mortgage crisis,’ she said.

Mr Nicholas Mak, director of research and consultancy at Knight Frank, said ‘on the whole, the property market is still quite sound’.

‘This is not the Asian financial crisis,’ he said. ‘If investors become convinced that it is a more localised problem in the United States and Europe, they will still be cautious, but I don’t think there will be panic selling here,’ he said.