Private Home Prices May Have Peaked

Source : The Straits Times, July 2, 2008

URA estimates show mere 0.4% rise between April and June, the lowest growth in 4 years

GROWTH in private home prices ground to a halt in the second quarter, dragged down by dismal market sentiment and a poor showing in the luxury segment.

But things were cheerier among cheaper homes, with prices of suburban condominiums and HDB resale flats continuing to climb.

Private home prices inched up 0.4 per cent between April and last month, according to flash estimates from the Urban Redevelopment Authority (URA) yesterday.

This is the smallest rise in about four years and a stark drop from the 3.7 per cent rise recorded in the first three months of the year.

On the supply side, there were 67,700 private residential units as at the first quarter, of which 56,500 are expected to be completed between this year and 2011. Some 42,700 units, or 63 per cent, in the pipeline are unsold.

Experts were divided on whether the market has peaked. While home sales have been in the doldrums since late last year, recent launches - at lowered prices - have been encouraging.

Some consultancies, like DTZ Debenham Tie Leung, predicted that private home prices are 'set for further corrections' with bigger developers likely to follow in the footsteps of smaller ones and cut prices to move sales.

Prices will come under pressure from two other factors - speculators dumping units and more homes coming on the market as construction ends, DTZ added.

Its analysis of selected projects showed that prime freehold flats actually fell in price by 4.7 per cent in the second quarter while values of suburban and landed homes were unchanged.

Ms Chua Chor Hoon, DTZ's senior director of research, said: 'This is just the beginning of a decline. Prime properties have started to come down and while the mass market is still holding, we're no longer seeing increases.'

URA data showed that condos in the prime central region led the slowdown in the second quarter, with prices creeping up just 0.2 per cent. City-fringe home prices rose 0.7 per cent while those of suburban condos increased by 1.3 per cent.

The star performer was the HDB resale market, where prices climbed 4.4 per cent - more than the 3.7 per cent growth in the first quarter.

Mr Colin Tan, head of research and consultancy at Chesterton International, said the demand for HDB flats was likely boosted by too-high prices of private homes.

But the private home market 'has probably peaked and prices will come down, if not in the next month, then in the following months', he added.

Mr Nicholas Mak, Knight Frank's director of research and consultancy, added: 'If sales volumes don't pick up much and if the United States posts very weak economic growth, we could see a price decline by December.'

But other consultants painted a brighter picture.

CBRE Research executive director Li Hiaw Ho noted that 1,200 to 1,400 new homes were sold between April and last month, almost double the 762 sold between January and March.

Most of the projects that sold well were mid-tier or mass market condos, with average prices between $775 per sq ft (psf) and $1,225 psf, he said.

'Despite prices softening a little, volume has improved in the last four weeks and this might encourage more developers to launch products.' This could boost transactions in the next two quarters, which may lead to a strengthening of prices, Mr Li added.

Dr Chua Yang Liang, Jones Lang LaSalle's head of South-east Asia research, was more cautious. 'Demand remains favourable in the suburbs, thanks to strong economic growth and a rise in average wages in the first quarter,' he said. But the market is expected to 'continue to swing from month to month till we see a clear stability in either volume or price level'.