Source : The Straits Times, June 26, 2008It estimates only 60% of the 30,000 units forecast will be completed, so fall in prices will be modestANALYSTS from Citigroup have stuck their necks out to dismiss some market predictions of a crippling property glut in the next two years.
Official figures show that around 30,000 homes will be completed in the next two years, but Citi reckons only around 60 per cent will likely be ready.
PHOTO: ISTOCKPHOTOIf the bank's forecast is accurate, it could mean that downward pressure on prices will not be as great as some had feared.
Citi's report on Singapore property, which came out on Tuesday, pointed to where previous predictions may have got it wrong.
It stated that by the end of March, there were 6,000 collective sale units that had yet to be demolished.
Some of the delays are because of legal challenges over sales, as well as developers extending lease periods for owners due to the weak primary market, Citi said.
It estimated that there will be 8,200 units completed next year and 10,200 in 2010, assuming no further collective sales are done.
These numbers are way below market expectations of 12,500 units next year and 17,500 units in 2010, it said.
These higher supply numbers had led many experts to conclude that an oversupply was on the cards.
But Citi stated: 'We have always argued that such estimates are not always accurate and they often get revised downward over time.'
However, it did not elaborate further on the reasons for its lower supply projections.
Knight Frank director of research and consultancy Nicholas Mak said the direct impact of the supply completion figures on prices is limited because most of these homes would already have been sold.
But a large supply of homes for occupation would negatively affect rentals, and this would in turn hit prices, he added.
Savills Singapore also believes the supply figures released by the Urban Redevelopment Authority are too high.
Mr Ku Swee Yong, its director of marketing and business development, said completion delays in collective sales, as well as delayed launches, have not been factored in.
'There are insufficient construction resources, which means there will likely be delays,' he added.
'Prices of mid- to high-end properties will fall but not to the extent of the 30 per cent to 40 per cent drop predicted by some analysts.'
Banks like Credit Suisse and Barclays Capital have forecast drops of up to 40 per cent in rents and prices, but Citi tips a fall of up to 30 per cent, and largely only in high-end homes.
Citi expects this sector will suffer from falling demand, particularly as expatriates and locals keep downgrading.
That will put downward pressure on rents of prime homes and further pressure on prices, it said.
Citi also said a long downturn like the one that caught out many buyers in the late 1990s and early 2000s is unlikely.
This is because resale volumes are still at above average levels, reflecting strong genuine demand. There is no sign of overbuilding or an overall housing shortage.
Also, mass market homes remain highly affordable and are supported by high rental yields of more than 5 per cent, Citi said.
'Due to the sharp rise, we believe high-end residential is likely to suffer the brunt of the 20 per cent to 30 per cent price decline while the mass market should remain fairly firm.'
The mid-tier segment is likely to fall by 10 per cent to 20 per cent, it said. These are from a high base.
Luxury home prices have surged by 149 per cent since the troughs in 2004.
Prices in the mid-tier and mass-market segments rose by a still robust 79 per cent and 39 per cent respectively.
It paid about S$250 million for the purchase, which includes retail space and parking lots. 
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