Private Home Prices Starting To Dip

Source : The Straits Times, August 11, 2008

Experts expect gradual downtrend, but not lows of financial crisis days

IT IS a bit like the dog that didn't bark in the night: Economic growth is slowing, shares are crashing and property sales have slowed, yet private home prices have refused to take the hint and fall.

Indeed, they have barely budged since the slowdown began about nine months ago, despite conventional wisdom saying they should be plunging.

But property experts see increasing signs that a price fall is coming, and while no one knows by how much, few believe a crash is on the cards.

Anyone waiting for bargain basement deals might be out of luck, with the local market trading at a higher range based on the country's rosier long-term prospects.

Prices are being kept up partly by low mortgage rates and the ability of developers flush from last year's bumper returns to hold off launching new flats.

A seasoned market watcher said the impression that Singapore was not dramatically hit by the United States' sub-prime woes has helped keep prices stable.

However, new sales have slowed significantly, and prices are starting to reflect this. The Urban Redevelopment Authority showed that private home prices inched up just 0.17 per cent in the second quarter - the least in four years and well below the 3.8 per cent in the first quarter.

With price growth disappearing amid sluggish demand, a downtrend - with a bigger blip seen for the luxury sector - seems inevitable, said market watchers.

Private home prices are still beyond the reach of most owner-occupiers, said Chesterton International's head of research and consultancy, Mr Colin Tan.

But any correction is likely to be gradual, with experts tipping a timeframe of a year or more. It will not be steep at this point as interest rates are low and the economic outlook is not that bad.

Mr Tan said home prices will take a long time to fall because the decline is being led by individual investors. They will be forced to sell when their rentals cannot meet mortgage payments, a situation that will become increasingly apparent as more units go on market.

These will mostly be the flats bought at the market's peak around the middle of last year, said the market watcher.

Investors who bought low under the deferred payment scheme will be able to sell below developers' asking prices and still make a profit. When they do, their deals will weigh on the market, he said.

'The decline will not be led by developers as they have profited immensely from the price run-up in 2006 and 2007,' added Mr Tan. 'At the moment, they only have to sell enough units to keep revenue streams flowing.'

If the market remains weak in the next six months, prices could easily fall 20 per cent to 30 per cent on average over a period of time to levels seen in 2006, with the high-end sector bearing the brunt.

Still, the lows seen in the post-Asian financial crisis days or the Sars period are gone forever unless Singapore is hit by a major catastrophe, experts say.

'We do not see a repeat of the prices in 1997 or 2003 because those were big shocks,' said National University of Singapore associate professor, real estate, Mr Sin Tien Foo. 'There is no bubble effect.'

Besides, prices hinge on quality. 'Nowadays, people are looking for better designs and materials, which would increase developers' costs,' he said.

Jones Lang LaSalle's head of research for South-east Asia, Dr Chua Yang Liang, said: 'Theoretically, property values appreciate over time.'

While poor fundamentals can send prices below the replacement cost level, this is an unlikely scenario here as fundamentals have been good and look to remain stable, he said.

Singapore's employment rate is still strong and income growth stable. As the director of Savills Residential, Mr Ku Swee Yong put it: 'The sellers are not losing their jobs.'