Unpredictable Rise The Worry

Source : The Straits Times, Mon, Sep 03, 2007

MUCH ink has flowed about rising rents for residential and commercial properties, and the worry that this will result in higher costs that erode Singapore's competitiveness. On the other hand, there've been reassurances that though costs have gone up, the city remains a cheaper place to operate in than Hong Kong or
Tokyo. Both observations are valid. But the more significant point isn't that prices have risen to a higher plateau; it is that they've been launched on an indeterminate trajectory. For what business abhors isn't necessarily higher prices - stable growth in costs, even from a high base, can be planned for. But when they rise in unpredictable ways, budgets get busted, business plans must be revised and earnings cannot be accurately projected. This is why businesses are so concerned.

Trade and Industry Minister Lim Hng Kiang got closer to the issue when he said Singapore needs to 'maintain vigilance over (its) costs, as excessive cost increases will dampen (its) growth prospects'. But the question is: How? Mr Lim offered as examples recent measures such as releasing land for temporary offices and providing more public flats for rent. It remains to be seen how effective this will be. Mr Lim also said additional information on property prices and rents allows for 'more informed decisions on property purchases and rentals'. This is fine, but transacted-price information is only one side of the issue. Anecdotally, a number of recent renters say they felt they were bidding against phantom competitors. Transparency on the negotiation side would appear more important for taking out some of the excesses. But again, how can this be realistically accomplished? Ironically, one reason prices could be skyrocketing is because of an anticipated increase in supply in a few years' time. Realtors and owners might be hoping to maximise profit now before the supply squeeze eases. A number of renters, for instance, say landlords aren't willing to offer lease renewals of more than a year.

Short of intervention - unrealistic and meddlesome - there seems little prospect for relief until more rental space is available. Still, with the economy doing well, most companies will feel the squeeze on earnings but at least can afford the price crunch with some tweaks to operations. One hope, however, is that the demand side could eventually show that price elasticity has a limit. For now, that hasn't happened, perhaps because the wild ride in prices still is young. So one thing to do would be to be patient and watch if properties begin staying empty for longer than of late.