Published October 25, 2008

Private property prices, rents fall

URA's private-home price index down 2.4% in Q3; industrial property prices, rents make gains

By KALPANA RASHIWALA

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OFFICIAL data released yesterday confirmed that the private property market has started sliding backwards, while analysts tried to work out how much of its recent gains it would eventually give up.

Price and rental indices for private homes, offices and shops fell in Q3 over the preceding quarter - for the first time since the market bottomed in 2004. Industrial property prices and rents still managed to register quarter-on-quarter gains in Q3, albeit at a slower pace than the increases reported in Q2.

Urban Redevelopment Authority's (URA) price index for private homes declined 2.4 per cent in Q3 over the preceding quarter, more pronounced than the 1.8 per cent drop indicated in a flash estimate earlier this month.

The Q3 private-home price index is still 8.3 per cent higher than a year ago, leading some analysts such as JPMorgan's Chris Gee to say the official price indices are lagging market expectations. 'If you wanted to close a condo sale today, you'd expect the price to be around 20-30 per cent lower than last year's peak.'

Between the trough in Q1 2004 and the peak in Q2 this year, URA's price indices appreciated 68 per cent for offices, 58 per cent for private homes and 39 per cent for shop space. The question is how much of these gains will be surrendered during this downcycle and how long the slump will last.

'This property slump will be much worse than the one during the Asian financial crisis; this time, we have a global crisis. We still don't know what the entire suite of knock-on effects will be...' A property industry veteran

The optimistic view is that about half the gains could be lost in a downcycle lasting until end-2009.

Some pessimists suggest the downturn will drag for around two to three years, and see prices easing back to the previous trough, that is, all the gains will be lost. 'Although the Singapore economy is much broader-based today than a few years ago, financial services was a key driver of recent economic growth and had a disproportionate impact on the high-end residential and prime office markets. So if the financial industry tanks, the impact will be greater on these two property segments,' said an analyst with a US bank.

A property industry veteran said: 'This property slump will be much worse than the one during the Asian financial crisis; this time, we have a global crisis. We still don't know what the entire suite of knock-on effects will be. Right now, it's consumers lacking confidence. Failures may come from many other sources, some of which will be unexpected. The downtrend has begun and is not expected to reverse any time soon.'

URA's data showed that developers sold 1,558 private homes in Q3, up 2.2 per cent from 1,525 units in Q2. The 3,845 private homes developers sold in the first nine months of this year are about a quarter of the 14,811 units they sold for the whole of last year.

A property analyst pointed out that an even more alarming trend was the decline in resale transactions of private homes, which have slipped from a high of 7,776 units in Q2 2007 to 1,974 units in Q3 this year.

'Resale transactions are sometimes seen as a proxy for the level of genuine demand, whereas the primary market tends to attract more investment/speculative demand and the subsale market is an even more direct proxy for the level of speculation,' the property analyst from the US bank said.

The number of private-home subsales islandwide fell 10.8 per cent quarter on quarter to 462 in Q3. Subsales accounted for 11.6 per cent of total private housing transactions in Q3, down from a 12 per cent share in Q2.

In the Core Central Region, subsales made up 24.1 per cent of total transactions in Q3, an increase from a 22 per cent share in Q3. The rising subsale share in the region was on the back of a 29 per cent drop in developer sales in Q3.

Meanwhile, URA's Q3 price indices for non-landed private homes fell 2.7 per cent quarter on quarter in Core Central Region, 2.4 per cent in Rest of Central Region and 1.5 per cent in Outside Central Region (OCR).

The official price indices for office and shop space declined 3.9 per cent and 0.3 per cent respectively in Q3. The all-industrial property price index rose 0.9 per cent.

The public housing market continued to buzz, with Housing & Development Board's resale flat price index rising 4.2 per cent quarter on quarter in Q3.

Colliers International director Tay Huey Ying said that developers' sales failing to keep pace with launches led to a surge in the stock of launched but unsold private homes in uncompleted projects to 3,570 units in Q3, almost 30 per cent higher than Q2's 2,755 units and more than double the recent low of 1,658 units in Q2 2007.

Knight Frank director Nicholas Mak expects the decline in private home prices and rentals to persist. 'With the slowdown in the private residential market, it is anticipated that developers could sell between 4,900 and 5,400 units in 2008, which would be only about one-third of the primary market sales last year,' he added.