Mid-market may not shine and high-end is unlikely to collapse, he says
City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday turned a popular market view of the Singapore residential sector on its head.
Many have whispered that the high-end residential segment is in danger of being hardest hit by the sub-prime crisis while the mid-tier and mass-market segments will be better shielded. Not true, says Mr Kwek.'The high-end is not going to collapse like what some (in the market) are saying. The mid-end is not going to be fantastic, like what is commonly believed, because of the subprime situation and Singaporeans' wait-and-see attitude.
'The mass market will do well, but selectively. It's not going to be what you've seen before...people queuing up,' Mr Kwek said.
The Housing & Development Board also provides a credible alternative to mass-market private housing, Mr Kwek said at a media and analysts' briefing to announce CDL's results for the year ended Dec 31, 2007. The group's full-year net profit doubled to $725 million - a record.
Mr Kwek also acknowledged that the current market environment was not conducive to setting up real estate investment trusts (Reits). He would look into opportunities to buy into existing Reits, but only if they were being offered for sale together with their respective Reit management companies, which earn handsome fees.
On the high-end residential sector, Mr Kwek noted that it is supported not only by wealthy local investors with holding power, but also by well-heeled foreigners. 'Super-rich investors from Russia, Middle East and even hedge-fund managers have yet to come into Singapore in a big way.
'With Singapore developing into a global city and placed into the limelight, it can be a very attractive place to invest for these well-heeled clienteles, as seen in London,' CDL said in its results statement.
The next big wave for the Singapore property market will come when the two integrated resorts are operating successfully. 'It will be a different Singapore altogether. Singapore is a hub. I've been harping on this. Nobody believed me until last year,' said Mr Kwek.
He also sought to debunk another popular view, that the deferred payment scheme which was removed by the authorities in October last year, had only served to fuel property speculation. 'Deferred payment is not only an instrument for speculation. It is an instrument to enable buyers of new (residential) units to dispose of their existing units at a gradual pace, instead of being forced to sell their existing homes,' he said.
Noting that sentiment in the local property market has become subdued because of the sub-prime issue, Mr Kwek said: 'Sentiment is more important than supply and demand. The higher the prices, the more people buy.'
He also recommended buying real estate as a hedge against inflation, especially given the current low housing loan rate environment, adding in the same breath that he was not trying to talk up the market - drawing laughter from the audience.
But Mr Kwek also had some advice on affordability. 'You must be able to pay your instalment, that is most important. If you can't pay the instalment, and you hope (the property value) will go up tomorrow, then you are speculating.'
Referring to the squabbles among owners in estates with en bloc sales, Mr Kwek said: 'People are fighting, because they are jealous somebody sold higher. Who can say this is the peak? You should be happy if you have a good gain, don't fight. That's my advice.'
He estimates that about 50 per cent of those who've sold their homes through en bloc sales have not yet bought replacement homes, even if they may want to downgrade.
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