Private Property Developers May Introduce Rental Guarantee Schemes

Source : Channel NewsAsia, 09 March 2009

Despite the recent pickup in activity in the residential property market, developers may start offering even greater incentives to attract buyers.

Analysts say it is still too early to say for sure that the market has hit bottom, and developers may have to do more if conditions weaken.

A new project, Double Bay Residences, has been launched for sale, and like several recent offerings, the developer is offering to absorb interest on the mortgage until the units are ready for occupation.

But analysts say such incentives may not be enough.

Head of research and consultancy at Jones Lang LaSalle, Chua Yang Liang, said: "If you look at the market today, the incentives that developers provide can be broadly classified into two groups - soft and hard (incentives).

"Right now, we see more of the soft (incentive), which is more of a marketing appeal to buyers with things like furniture, television sets, one of the kickbacks that developers provide.

"In 1998, at the heart of downturn, we saw more hard incentives. We saw affordability slanted incentives, discounted pricing, price guarantees, price appreciation guarantees and rental guarantees."

With rental guarantees, developers undertake to guarantee rents at a specified yield over a certain period of time. According to some property consultants, developers may start making such offers towards the end of the year.

However, developers say such measures are unlikely in the near term as there is still sufficient demand.

Chief operating officer of UOL Group, Liam Wee Sin, said: "Even for the Interest Absorption Scheme (IAS), you'll be surprised that we have less than 50 per cent (of buyers) taking it up. So a lot of them are not even opting for the IAS, which means they can well afford the interest."

He added that part of the reason is the Asian perception of home ownership. Mr Lim said: "People tend to underestimate Asian mentality. The Asian mentality is that property is a very big part of wealth creation. It is also an aspiration.

"In the 1990s when it was a bottom-up market, when people could afford (a private condominium) they would take a view (at the apartment) and jump into the market and buy one."

With prices of public housing remaining strong, property watchers say this makes it affordable for homeowners who want to upgrade to mass market private homes. For now, this will help support the mass market private residential segment. - CNA/yt