Property
A deeper downturn
Developers delay new start-ups as residential prices projected to fall by up to 40% from now till 2010.
May 26, 2008

An uncertain economic outlook and a looming housing glut are threatening to plunge the residential property Markey into a prolonged downturn, Reuters reported.

The agency said homebuilders like CapitaLand, Keppel Land and GuocoLand have delayed starting new projects in the moribund market, after taking a hit to first-quarter earnings.

With home prices expected to fall 30 to 40 percent over the next three years, Singaporean developers could be badly hit and analysts may slash their earnings estimates further.

"This is the start of a multiyear price correction," said a Barclays Capital economist, Leong Wai Ho.

"Private residential property prices could easily fall by up to 30 percent by 2010."

Meanwhile in a research report dated May 5, Credit Suisse said that it expected the Singapore residential market could “see a bursting of a bubble” as a result of exuberant expectations over the past two years.

Housing prices have started falling. “Secondary transactions already show prices of like-for-like units down 5-25 per cent from peake levels…

”We now expect physical prices to correct as much as 30 per cent correction from end-2007 levels over 2008 and 2009, with the high end most vulnerable.”

As prices of some properties had doubled or tripled over the past two years, even with a 30% correction, prices would still be at least 40 per cent higher than early-2006 levels for most properties, Credit Suisse said.

What will trigger the sharp fall? Credit Suisse attributed it to the following factors:-

(1) Withdrawal of liquidity that drove the market up during the past two years (en bloc, deferred payment scheme, foreign capital),

(2) Dumping by marginal speculators, who cannot hold or pay for their purchases

(3) Potential price cuts by small developers with high gearing

(4) Rising vacancies with rising supply, and

(5) Deterioration of the local employment situation.

The current vacancy rate, now standing at 5-6 per cent, may rise to 9.8 to 19 per cent, it said. “This could trigger rent and price declines of more than 40 per cent,” Credit Suisse said.
May 26, 2008