Home Prices Hit 2007 Peak

Source : The Straits Times, Aug 17, 2009

Residential prices may fall about 20%: Analyst

ANTI-SPECULATIVE measures, falling rental yields and ballooning supply may drive residential property prices down by about 20 per cent, says an analyst.

'The residential sector recovery was initially driven by pent-up demand and cheap capital values, but we now see speculation in all residential segments, particularly the mass segment,' Ms Wirawan said. -- PHOTO: THE BUSINESS TIMES

Sounding a contrarian view that runs against current sentiments, RBS Singapore analyst Fera Wirawan warned that prices of some segments of the market have risen to 2007 peaks amid a strong upswing in buying levels.

Based on her analysis, prices of mass-market homes, or low-end private properties, are now at peak October 2007 levels, while prices of mid-tier and high-end homes are just 8 per cent and 22 per cent off their peaks respectively.

With prices surging 16 per cent to 26 per cent in recent months, the residential property sector may have peaked, Ms Wirawan cautioned.

'The residential sector recovery was initially driven by pent-up demand and cheap capital values, but we now see speculation in all residential segments, particularly the mass segment,' she said.

Average selling prices (ASPs) at recent property launches are 30 per cent to 80 per cent above the ASPs of nearby projects. This is markedly higher than the historical average of 20 per cent.

'Capital values have been rising in the face of falling rents and a full supply pipeline, a phenomenon we attribute to low average mortgage rates of 2 per cent.'

She noted that the strong residential volumes were triggered by Frasers Centrepoint's launch of the mass market Caspian project at an affordable $580 per sq ft in February, which attracted a high take-up owing to pent-up demand in the mass residential segment.

The positive sentiment from the sale of Caspian units quickly filtered through to the mid-tier and high-end segments.

This frantic level of buying, in annualised terms, almost matched the record number of new homes sold by developers in 2007. Property developers here sold more than 7,000 private homes in the first half of this year, double what they sold in the same period last year.

Read the full story in Monday's edition of The Straits Times.