Mass-Market Safe, High-End May Take A Hit

Source : The Business Times, February 21, 2008

Property players sketch the best and worst-case scenarios for private homes in 2008

Luxury-home prices could fall by up to 20 per cent in 2008, assuming sub-prime woes don't end this year. But the mass market may hold its own or ease 5-10 per cent at most. This was the worst-case scenario according to most property players polled by BT.

In a best-case scenario with sub-prime woes clearing by mid-year, high-end prices could rise up to 10 per cent and mass-market homes as much as 15-20 per cent, the majority of respondents said.

The most optimistic is Jones Lang LaSalle Research, which forecasts an 18-22 per cent increase in luxury/prime prices and a 20-25 per cent gain in mass-market prices in a best-case scenario.

Sales activity is generally expected to be quiet in the first half, before picking up in the second half. 'Interest is still very much there, but investors see no strong push factor to get into the market just yet,' says DTZ executive director Ong Choon Fah.

Most developers and property consultants are hoping the sub-prime-related gloom will vanish in the second half. Voicing a common view in the industry, City Developments group general manager Chia Ngiang Hong said: 'We expect the situation to improve after mid-year. Most of the high-profile sub-prime-related write-downs by major international financial institutions are already out. Hopefully, the rest of the write-downs, if any, should be out by March/April. This current period is good for consolidation.'

UOL Group chief operating officer Liam Wee Sin said: 'If the sub-prime episode is short-lived, it can be seen as a welcome breather for the Singapore property market. Both home and land prices in the high-end segment escalated too quickly, especially in Q2 and Q3 last year.'

But Wing Tai deputy chairman Edmund Cheng feels it may not be realistic to expect sub-prime problems to fade away by mid-year. 'They are likely to linger beyond this year, as the exposure has extended to many other areas, and it may still take some time for the full extent of exposure to be discovered,' he said.

But on a more positive note, he believes mid/ upper-mid projects near Orchard Road will be more resilient 'as they should benefit from demand for replacement properties by those who have sold prime district homes through en bloc sales, as well as demand from expats who find prime district housing too expensive'.

Agreeing, Credo Real Estate managing director Karamjit Singh thinks mid-tier private home prices will appreciate 10-15 per cent this year in a best-case scenario, outpacing his estimate of gains of 10 per cent for the suburban/mass market and 5-10 per cent for upmarket homes.

In the high-end category, many property analysts with stockbroking firms see an oversupply of potential launches as sites sold through en bloc sales are redeveloped.

In a worst-case scenario, a major factor that could hurt high-end prices is if demand dries up and 'specu-vestors' who bought luxury homes in the past few years offload them below current prices, as they still stand to reap huge gains given their low entry cost, reckons Knight Frank executive director Peter Ow.

In the primary market too, some smaller developers may drop prices to generate sales. But Mr Ow acknowledges that the bulk of the unlaunched high-end housing stock is in the hands of a few major players who have the financial capacity to delay launching projects. Instead, they could focus on selling their mid-tier and mass-market homes this year to generate cash flow.

Giving his take, a major developer said: 'High-end depends on the appetite of foreign buyers and their perception of liquidity and value in the Singapore market. The strong Sing dollar will help persuade these investors that the property market here will be a good store of value.'

Observers also believe overseas funds are likely to turn increasingly to parking money in Asia, instead of the United States and Europe. Other demand drivers for the Singapore residential sector, especially in the mid and mass segments, include falling mortgage rates, the continued influx of expats from China and India setting up home here, and wage growth arising from the tight labour market.

Most market watchers say the upside for high-end residential prices will be limited even if the sub-prime problem clears around mid-2008.

'Price increases would not so much apply to luxury-class homes as these have already increased significantly since 2005,' CB Richard Ellis managing director Pauline Goh argues.

However, mid-tier homes could appreciate 5-10 per cent and mass-market prices 10-15 per cent this year, assuming things become more positive after June, Ms Goh added.

Frasers Centrepoint CEO Lim Ee Seng said: 'Even in a worst-case scenario, I don't really see mass-market home prices coming down much because construction costs are still going up and that raises the breakeven cost of such projects.'

Knight Frank's Mr Ow says the mass-market will benefit from strong demand from HDB upgraders, given the shortage of HDB homes.