Property:
Normalcy Depends
on Indonesia
As
long as there's economic growth and political stability,
prices will keep rising. Has this conventional wisdow
changed?
Feb 11, 2001
A price war is now going on in the residential property
market. No, not undercutting among developers, not
yet anyway.
It is waged between big developers who swear theyíll
not cut prices in a depressed market and potential
buyers who are betting they will.
After pushing them up by 34 per cent in 1999 and seeing
them fall by only 1% last year, the tycoons are drawing
the wagons into a circle - but buyers are not impressed.
With the large supply in the market, patience will
win. Cashóadequate developers with freehold condos
can afford to fight for a while longer but not the
small guys labouring under mortgages and a few 99-year
leasehold units to sell.
With a sharp downturn coming up and the job market
so uncertain, potential buyers are right to stay away.
Last year when the economy boomed, only 4,800 new
homes were sold in land-scarce Singapore, a drop of
40 per cent.
So will property resume its rise? When?
The market explains the current weakness as a seasonal
downturn, caused by an over-supply and an economic
uncertainty. Eventually, they say, it will blow over.
Others less sanguine, however, believe the decline
is more fundamental. Under a global, knowledge economy,
real estate will never be what it was before.
Another changed trend is that excessive property prices
will always become a political sensitivity in a one-man-one-vote
society that no government can ignore.
It is a drastic change from several years ago when
few people on this earth were chasing after property
as strenuously as Singaporeans.
Everyone wanted to buy including those who already
had it. Senior Minister Lee Kuan Yew, who knows his
people well, once dangled it to exhort the new generation
of Singaporeans to work hard.
Describing life as a new marathon race, Mr. Lee said
every participant would win a prize as long as they
finish it and that would be a second property.
In the last 10 years, 58% of the 3.2 million population
have changed homes, easily the highest proportion
in the world. Among private homeowners, the figure
is almost 70 per cent.
A few old timers made their fortunes by betting that
property would become the fastest growing asset that
which would one day match Tokyoís values. At its peak,
premium land there sold for US$18,000 a square foot.
No reason why land-scarce Singapore would not follow,
I once wrote.
It would be based on market forces. In Singapore supply
would always be limited (reclamation aside) but demand
would grow, as long as there was stability and prosperity.
At times prices would leap; at others, they would
be slower or even fall back, but the long-term pattern
was unquestioned.
Today these fundamentals remain the same. Singapore
is tiny and will remain tiny, so anybody who wants
to live here will have to pay whatever the market
dictates.
Increasingly, foreigners will settle their families
in this state from where they will venture out to
work or do business in the region. This will increase
demand further.
My feeling is that it doesnít matter where the land
is. Anyone, who owns a piece of land (especially freehold)
in Singapore, no matter how isolated, will, over time,
be sitting on a Tokyo-size fortune.
For that, several things must first happen.
Firstly, prices must come down by another 20-30 per
cent so that the 22,000 units of backlog, will be
significantly reduced.
Secondly, the uncertainty of the regionís economy
and the job market is removed. Property purchase is
a long-term commitment that only a two-income couple
can afford.
At the moment there is a lot of fear that if one spouse
loses his or her job then they will not be able to
service the loan. This fear is putting people off.
But it is the third factor that is causing a loss
of confidence in Singapore itself and Indonesia. Would-be
buyers are fearful that this giant neighbour will
disintegrate or blow up, spilling trouble to Singapore
and Malaysia.
Until things stabilise, property will not likely take
off. This seasonal downturn, I fear, will last at
least four or five years assuming Jakarta settles
down by then.
Otherwise, longer.
Seah Chiang Nee
