Analysts point to over-supply and weak rental demand
THE optimism in Singapore's property market is unsustainable, given an impending over-supply of new flats, weak rental demand and the fact that the country remains in a recession.
While there has been strong resale demand, the call for new homes is patchy and rental demand remains weak. -- ST PHOTO: LAU FOOK HONGThat is the pessimistic view of two research houses, which concluded that the price recovery is highly fragile.
Citigroup said the market is not at the start of a cyclical upswing and that the spike in home prices cannot last. 'We caution against over-optimism, because fundamentally the market is not ready for a sustained price recovery,' analyst Wendy Koh wrote in a report on Thursday.
In the same report, she downgraded Allgreen to 'sell', putting the developer in the same 'sell' basket as City Developments, CapitaLand and Keppel Land. Citi also downgraded Wing Tai to 'hold'.
While there has been strong resale demand, the call for new homes is patchy and rental demand remains weak, Ms Koh said.
Resale prices of some projects have risen and some developers are reducing discounts for new projects but Nomura Singapore believes these seemingly positive factors are misleading.
It maintained that the demand for new homes was boosted by price discounting and the interest absorption scheme.
'A rapid deterioration in rents amid higher supply and weaker demand has undermined yield expectations,' it said.
Nomura also pointed to the damaging effect of rising unsold inventory and forced sales by defaulting or distressed buyers who bought on deferred payment.
These properties form a source of 'hidden' inventory that will place further pressure on asking prices.
Read the full story in Saturday's edition of The Straits Times
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