2008 Seen As Year Of Mass Market Homes

Source : The Business Times, December 5, 2007

Developers, consultants predict 10-20% hikes for this segment in 2008, high-end gains seen tapering to 0-10%

As the year draws to a close, developers and property consultants are cautiously optimistic about prospects for the Singapore property market next year despite the US sub-prime mortgage crisis and rising oil prices.

Full-house: Minister for Trade & Industry Lim Hng Kiang speaking at Redas' 48th anniversary dinner last night, where he was the guest-of-honour.

For the residential sector, they expect the action to be concentrated in the mass market next year, after the stellar increases in high-end home prices this year.

They also generally expect the authorities to adopt a more measured approach to the Government Land Sales programme in the first half of next year, given the relatively thin bidding seen for most state sites recently.

CB Richard Ellis chairman (Asia) Willy Shee predicts high-end home prices will likely remain more or less at current levels next year - after a nearly 50 per cent price gain this year - on the back of new supply coming into the market. Prices of mass-market private homes are likely to appreciate 10 to 15 per cent in 2008, after rising about 25 per cent this year, he added. 'I think building costs have already gone up over 30 per cent so far this year,' he says.

Similarly, Ho Bee Investment executive director Ong Chong Hua says: 'We cannot see the same magnitude of price growth in 2008 that we've seen in the past two years. It's not sustainable. We'll see more steady growth next year.'

Overseas Union Enterprise chief executive officer Thio Gim Hock says: 'High-end prices will at least maintain or go up by 5 to 10 per cent, while the mass market will rise between 10 and 20 per cent in 2008.

'By next year, sub-prime will be behind us and confidence will recover again.'

Mr Ong predicts a 10 per cent price gain for both upmarket and mass-market homes next year. 'The increase in mass market home prices will be very measured until the sub-prime cloud clears,' he says.

Knight Frank managing director Tan Tiong Cheng expects the fate of the high-end market to be determined by foreign investors (and their reading of the global economic outlook) as well as the extent to which those who've sold their prime district homes through en bloc sales buy replacement homes in the high-end of the market.

Hong Leong Group executive chairman Kwek Leng Beng says: 'Even in a period of consolidation, the market will come back. The fundamentals of real estate in Singapore are still very good. There's still upside for mid-range home prices, which are still below their peaks.'

Knight Frank's Mr Tan said: 'Fundamentally, Singapore is in a very sound position, property-wise. But what will determine the state of the market will be external events, especially sub-prime, oil prices and the US economy. If the external forces turn out to be quite benign, the Singapore property market recovery will continue. But if the external forces turn out to be malignant, then all bets are off.'

Mr Kwek stresses that because developers have enjoyed good profit margins over the past three to four years, they are now in a strong financial position and can afford to take longer to sell their projects.

After the current lull, Knight Frank's Mr Tan expects developers to resume launches next year when the market's direction becomes clearer. 'They're likely to start launching closer to Budget time, when the Government gives its official reading of the Singapore economy,' he says.

Chesterton International's head of research and consultancy, Colin Tan, reckons that high-end residential property will weather any market downturn better than the mass market, as luxury homes typically offer a more resilient long-term investment proposition because of their superior location. 'Someone who buys a high-end home can always rent it out, even if he has to accept a lower rent,' he says.

Market expectations have been running so high that the authorities will step up the Government Land Sales Programme to stem rising property prices and rents. However, some property players suggest the uncertainty may make the authorities think again. 'Supply will continue to be released mostly through the reserve list, but some new housing sites in the city may be introduced in the confirmed list, as developing the Marina Bay area and rejuvenating the existing CBD seem to be a priority,' Knight Frank's Mr Tan suggests.

At Ho Bee, Mr Ong says that recent bidding at state tenders shows 'developers are re-calculating the risk premium because of uncertainty created by sub-prime'.

'(The) government will be careful about the confirmed list,' he says.