Home Prices Hold Their Own, But Just Barely

Source : The Business Times, April 2, 2008

Analysts expect at least one quarterly dip this year

Despite the quieter market, home prices continued to edge up in the first quarter, although at a slower pace, latest flash estimates show.

The quarter-on-quarter rate of increase in the Urban Redevelopment Authority’s price index for private homes decelerated to 4.2 per cent in Q1 this year, after a 6.8 per cent gain in Q4 2007.

Some property consultants are now factoring in declines for at least one of the remaining three quarters of this year, as the full impact of the US economic slowdown bites into the local property market.

URA’s flash estimate also showed that regional sub-indices for non-landed private home prices posted smaller gains all-round in Q1 this year than they did in Q4 2007. However, the 4.8 per cent increase in the Outside Central Region (OCR) in Q1 outpaced gains of 4.4 per cent in the Core Central Region (CCR) and 3.9 per cent in the Rest of Central Region (RCR) - for the first time in four years.

Jones Lang LaSalle said prices are steady in the CCR, supported by deep-pocketed investors, but may be peaking in the RCR, while demand continues to be strong in the OCR as en bloc sellers pick up replacement homes in the suburbs, where prices are relatively more attractive.

In the public housing segment, the Housing & Development Board’s flash estimate shows that the HDB resale flat price index rose 3.4 per cent in Q1 over the preceding quarter, again slower than the 5.7 per cent increase posted in Q4 last year.

Knight Frank director (consultancy and research) Nicholas Mak said that in a worst-case scenario - assuming the Singapore economy contracts in the coming months - URA’s overall price index for private homes could post a full-year increase of zero to 5 per cent.

This factors in one quarter of decline, to the tune of 0.5 to 2.5 per cent, possibly towards the end of the year. Any decline in the index would be the first since Q1 2004, Mr Mak added.

Mr Mak’s best-case scenario is for a 10-15 per cent full-year gain in the index, with increases in all four quarters.

URA’s private home price index rose 31.2 per cent in 2007.

Colliers International’s director for research and consultancy Tay Huey Ying too said that the Singapore property market is likely to experience the full impact of the US economic slowdown by Q3 or Q4 this year.

In a worst-case scenario, URA’s private home price index may rise 8 to 10 per cent for the whole of this year, with possibly a decline in the fourth quarter of not more than 4 per cent, Ms Tay said.

In a best-case scenario - if the US enters a mild recession and recovers by the year-end and Singapore’s GDP growth rate is at the higher end of the MTI’s forecast of 4 to 6 per cent - the full-year increase in URA’s index could be 12-15 per cent.

For the next quarter, CB Richard Ellis is predicting a marginal rise in the index, of about one to 2 per cent from the Q1 level. It estimates that developers sold about 700-1,000 private homes in Q1, less than the 1,449 units they sold in Q4 last year.

Observers said that price gains in the OCR may have come from the secondary market, from completed developments like The Clearwater and Aquarius by the Park in the Bedok Reservoir area. The fact that a new launch in the area, Waterfront Waves, sold for an average price of about $800 psf could have encouraged the trend.

In the western part of Singapore, units sold at The Lakeshore and LakeHolmz in the Boon Lay vicinity may also have helped boost the sub-index for non-landed homes in the OCR, analysts suggest.

Knight Frank’s Mr Mak said that the 4.4 per cent gain in the CCR during Q1 was the lowest rate of increase in the past seven quarters.

As for the HDB resale price index, ERA Singapore assistant vice-president Eugene Lim predicts a full-year increase of not more than 10 per cent, compared with a 17.5 per cent jump in 2007.

Some demand may be taken away from the resale market because of a higher supply of new flats coming onstream, so resale prices may increase at a more measured pace in the coming months.

The HDB said in its release yesterday that the total planned Build-To-Order (BTO) supply of 6,100 new flats for Jan-Sept 2008 will surpass the annual BTO flat supply in 2007 (6,000 units) and 2006 (2,400 units).

HDB’s records show that in February 2008, about a quarter of resale flats were transacted at prices not exceeding $10,000 above market valuation.