Thursday, July 10, 2008
Inflation Slows in Singapore's Residential Market
SINGAPORE -- The sharp inflation slowdown in Singapore's private residential market is the latest sign that times are getting tougher for local developers.
Prices increased 0.4% in the second quarter from the first, the smallest rise since mid-2004, according to recent government statistics. The figures were based on the first 10 weeks of the quarter, and some analysts said final numbers could show a decline in prices, which are likely to fall further in coming periods.
With buyers' sentiment expected to be weak for the rest of the year due to a poor global economic outlook, developers who have delayed new projects have no option other than to lower prices, analysts said. "Developers just have to come to terms with more realistic pricing. Moving inventories is more important than getting a good margin right now, so these companies need to lower their [price] expectations," said CLSA analyst Yew Kiang Wong.
Prices on sales of uncompleted projects are down 8% on average since the beginning of the year, according to Nomura.
"We are already seeing some developers lowering prices," Mr. Yew said. "At the end of last year, it was expected that City Developments would launch Shelford Suites, a new development, this year for an average sale price of 2,000 Singapore dollars [US$1,465] a square foot. They ended up launching it at about S$1,600." City Developments Ltd. General Manager Chia Ngiang Hong said the average price for Shelford Suites was "in line with our expectations."
Keppel Land Ltd.'s chief executive for the Singapore residential business, Augustine Tan, said the company isn't under pressure to lower prices. "The market is going through a consolidation phase, which happens in every upswing phase of a property cycle," Mr. Tan said. "Keppel Land is optimistic that the market will continue to grow thereafter."
CapitaLand Ltd. in May reiterated its target of offering 800 to 1,000 units this year. Chief Executive Liew Mun Leong recently said the company expects prices of mid- to low-tier homes will remain stable this year.
Private-home prices rose 31% last year, fueled by Singapore's ambition to become a business and entertainment hub in Asia. Singapore turned into a virtual construction site, and many projects were sold out within hours of being offered.
Signs of a slowdown started to show in the fourth quarter as the fallout from the U.S. credit crunch spread.
Mr. Yew said he expects a 10% to 20% price decline in the midtier and high-end residential segments this year. Property prices in the mass market, however, should rise 5% since the sector has lagged behind the rest of the market, he said.
About 85% of Singaporeans live in public housing built by the government's Housing and Development Board. Private developers compete to provide housing for the remaining 15% of Singapore nationals, along with a sizable foreign population.
Some analysts said the current slowdown is likely temporary and will turn bullish once investors sense that falling property prices are attractive.
"I just can't see property prices tanking -- not when you have interest rates so low and inflation so high, and you can go out to the market and rent out your place for this kind of rental yield," said Joseph Tan, senior strategist at Fortis Bank in Singapore. Even though the rental market has seen price pressure, rates have gone up rapidly in the past two years because of increasing demand from foreigners.
Things could change as the rising cost of living makes Singapore less attractive for expatriates. In addition, new apartments are expected to flood the rental market in the next two years.
Write to Patricia Kowsmann at patricia.kowsmann@dowjones.com
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