Big Property Stand-Off

Source : The Sunday Times, July 20, 2008

Developers are not lowering their prices, and buyers are not biting

It is seven months into the year, and while new private home sales have picked up from the lows seen earlier in the year, sentiments remain weak.

More bad news emerged recently from the United States, sending stocks plunging. The same question remains on potential buyers' minds: Is it time to buy?

Showflats of newly launched developments like the 616-unit Clover by the Park in Bishan (left) are pulling in the crowds again, but most are very cautious about signing on the dotted line.

Some developers started to launch mass- to mid-market projects last month, drawing the crowds back to showflats. These include huge ones such as the 616-unit Clover by the Park in Bishan, the 724-unit Livia in Pasir Ris and the 521-unit Kovan Residences next to Kovan MRT Station.

But while the crowds are back, few are biting. Most are very cautious when it comes to signing on the dotted line. 'I visited showflats to get a feel of what's available but prices seem high to me. If I buy now, I am afraid that prices will fall further,' said a 32- year-old marketing manager.

Another potential buyer, who is 27, said he has decided to wait one to two more years after a recent futile search. Those new projects that he likes are beyond his reach.

Lowering prices

Singapore's property market went up too much too quickly last year. Inevitably, there will be a correction or, as some market experts say, a possible reversal. Already, price growth has slowed to an estimated 0.4 per cent in the second quarter, down from 3.7 per cent in the first.

Private home prices rose 31.2 per cent last year, up from 10.2 per cent in 2006 and 3.9 per cent in 2005.

Mr Colin Tan, Chesterton International's head of research and consultancy, said: 'First, if you believe that there is such a thing called a property cycle, then the price decline is inevitable. The next question is: How deep will the decline be and how quickly will it reach the bottom?'

For now though, many developers are reluctant to lower prices.

'Developers will wait a while before lowering prices,' said DTZ's executive director and regional head for consulting and research, Mrs Ong Choon Fah.

Said a seasoned market watcher: 'Prices will fall. It's a question of how much. The US is likely to be in recession and it will hurt the rest of the world.

'Oil prices are rising. Inflation is a problem for Asia as it is unable to feed itself. This second half will tell you where things are going.'

Developers hold out

Market watchers say many developers do not want to lower prices since they are quite well-capitalised.

Some of them had sold units at the height of the boom last year, so they will try to hold on. Other developers say they have deep pockets and can hold.

Price supports cited by developers include high construction costs and a brighter long-term outlook.

Relatively low mortgage rates are also underpinning the market, said United Engineers chief executive Jackson Yap, who is launching a condo-like HDB project in Ang Mo Kio on Wednesday.

'There will not be a widespread price drop but certain developers, the small ones or the non-traditional ones, may lower their prices,' said the director of Savills Residential, Mr Ku Swee Yong.

Those that had launched earlier but have yet to get a contractor will be suffering, said the seasoned market watcher.

To hear developers put it, the lull is temporary as Asia remains very attractive to investors.

'On the whole, people still believe in Asia,' said Mrs Ong. 'Singapore has reinvented itself and is very different from 10 years ago.'

What it lacks now is confidence as the market outlook is still uncertain, she added. The problem, some think, is once you start lowering prices, where does it end, said Mrs Ong. 'Buyers may say that if you lower now, you may lower them again tomorrow.'

High-end prices have fallen nearly 10 per cent, according to Savills Singapore. Many say that if overall prices were to fall, the drop will likely not be steep.

How long will it last?

Some developers are hoping that the stand-off is short-lived as they quietly aim to launch their projects towards the end of the year. Some others are unsure and are prepared to ride out another quiet year or two.

'If good news happens, such as a prolonged easing of oil prices, I am quite sure a property recovery will take place towards the year-end, albeit at a slower pace,' said a developer who declined to be named.

'But if nothing's good in the market, I expect demand to remain sluggish and prices to ease further, especially the high-end ones.'

Well-located projects which are reasonably priced may be spared the poor demand, he said.

'Singapore is unique compared to most countries in the sense that our property cycles tend to have a very wide turning radius, that is, they take a long time to turn unless there is a catastrophe such as Sars or 9/11,' said Chesterton's Mr Tan. 'It is resisting any fall largely because long-term fundamentals are strong.

'If there is no recession, I expect the stand-off to be a long one as prices have risen quite a bit. But incomes have not kept pace.'