Private Homes Losing Speculative Froth

Source : The Business Times, January 26, 2008

Subsale activity slowed in Q4; rising rents defined 2007

The level of speculative activity in the private property market, as measured by the extent of subsales, slowed considerably in Q4 last year, especially in the Core Central Region (CCR), according to the latest official data.

Islandwide, subsales as a percentage of total private housing sales fell from 14.4 per cent in Q3 last year to 10.7 per cent in Q4, while in the CCR, the hotbed of speculation, the subsale percentage fell from 24.8 per cent to 18.6 per cent over the same period. Property consultants attributed the drop to uncertainty about the financial markets as well as the withdrawal of the deferred payment scheme in October 2007.

Reflecting the current housing shortage, the stock of completed private homes increased by just 1,448 units last year - the smallest rise in at least 12 years. The stock had increased by 4,008 units in 2006, 7,453 units in 2005, and 10,969 units in 2004.

Rents of condos and apartments rose significantly last year - by 42.3 per cent in CCR (comprising the prime districts 9, 10, 11, Downtown Core and Sentosa), an even higher 47 per cent in the Rest of Central Region (RCR), and 41.9 per cent in Outside Central Region (OCR).

'Looking back at 2003/2004, developers were cautious and there were not many housing starts. So three or four years down the road, we're seeing a fall in terms of new home completions,' DTZ executive director Ong Choon Fah explains. 'Of course there have also been a lot of en-bloc sales in the past two years and some of these properties have been demolished,' she adds.

'The situation is even more severe in the prime areas, and we've been seeing a lot of expats fanning out from the prime districts to RCR, to rent private homes, which probably explains why the increase in non-landed rents was steeper in RCR compared to the CCR,' Mrs Ong explains.

With many private residential projects likely to be completed only in late 2008 and 2009, property consultants including Knight Frank managing director Tan Tiong Cheng expect rentals for non-landed properties to increase further this year. The rise could be less steep - perhaps 20 per cent, or around half the rate of increase for last year.

Yesterday's data on the private property market by Urban Redevelopment Authority showed that the overall price index for private homes rose 6.8 per cent in Q4 over the preceding quarter, slower than the 8.3 per cent hike in Q3. For the full year, the index was up 31.2 per cent, three times the 10.2 per cent rise in 2006.

In terms of regions, the price index for non-landed private homes in CCR rose 7.5 per cent in Q4, more measured than the 8.3 per cent gain in Q3. Price indices for RCR and OCR advanced 7.7 per cent and 7 per cent respectively in Q4, slightly more modestly than in Q3.

For the whole of last year, the non-landed home price index for CCR rose 32.7 per cent, while RCR and OCR indices were up 30.4 per cent and 26.4 per cent respectively.

Developers sold a record 14,811 private homes last year, surpassing the previous high in 2006 by 32.9 per cent. They launched a total of 14,016 units in 2007, 26.6 per cent above the 2006 figure and also a new high.

Knight Frank director (research and consultancy) Nicholas Mak predicts that URA's overall private residential property price index will rise at a more sluggish pace - around 10-15 per cent - this year, as buyers become more prudent.

Colliers International director (research and consultancy) Tay Huey Ying reckons that subsales as a percentage of total private homes sales islandwide will continue trending down in the coming months, to average about 8 per cent for the whole year, as the market moves to a 'healthier and more sustainable set of fundamentals'.

Less speculation could also slow the hike in home prices, she says. 'As a result, developers are less likely to bid aggressively for development sites and this will affect the success rates of collective sales,' she adds.

Some seasoned market players are predicting that home prices in CCR could take a hit of up to 10 per cent this year; those in RCR will be flat, perhaps rising slightly; while OCR will post the biggest gains of about 10-15 per cent.

'There's significant supply of projects for launch in CCR, and that will weigh down on prices. Foreign buying will thin because of the financial market turmoil which is hitting high-net-worth bankers and others,' a veteran industry observer suggests.

BT learnt yesterday that the release of the high-profile Marina Bay Suites, which was initially slated for the end of this month, has been delayed till after the Chinese New Year festivities - by which time the Budget should also be announced and hopefully lift sentiment.