A more somber 2015?

January 5, 2015 4:48 PM SGT

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SINGAPORE: Close to 700 people turned up for the Real Estate Developers’ Association of Singapore (Redas) 55th anniversary dinner at the Ritz-Carlton Millenia on Nov 26.

It was a record attendance at the event, where the guest of honour was Khaw Boon Wan, minister for national development.

Scanning the crowd at the reception area outside the grand ballroom with a glass of wine in his hand, Tan Tiong Cheng, chairman of property consultancy Knight Frank, says, “People are definitely more sober.

There’s also a realisation that we are moving into a period of slower growth, not just in Singapore but globally.”

While market sentiment is poor, it is not as bleak as it was during the global financial crisis in late 2008 and early 2009.

“The mood today is very different,” says Tan.

“It’s muted.

In 2008, people were in shock.” Developers and property consultants The Edge Singapore spoke to expect 2015 to be a difficult year.

“I think it’s going to be tough across the board in the residential market if [the government] doesn’t relax the [property cooling] measures,” says a representative of a giant, listed property developer who declined to be named.

He foresees prices dropping further next year.

The residential market has been on a descent since the property cooling measures and the total debt servicing ratio (TDSR) were introduced, says Chia Boon Kuah, president of Redas, in a speech.

“The data and facts truly speak for themselves.” Transaction volume has halved — from nearly 18,000 last year to less than 9,000 expected this year.

Overall private home prices have declined in the last four consecutive quarters.

“Developers are concerned,” says Chia.

“Genuine homebuyers in Singapore have adopted a wait-and-see attitude.”

The spectre of unsold, completed residential units continues to haunt developers, and looms even larger as a new supply of 68,000 completed units is expected to come on stream in the next few years.

It’s likely to cause the home vacancy rate to head towards 10%, adds Chia.

This is expected to put further pressure on the residential market.

He sees the situation presenting “significant challenges” to the property sector, and notes that there could be a wider impact on the economy.

“It is in no one’s interest to witness unintended outcomes.

We, therefore, urge the government to stand ready, to take supportive measures to prevent a tipping point, should the market turn volatile and worsen further.”

The market quandary is that while private home transactions have halved compared with last year, the overall price drop even after four consecutive quarters of decline has been relatively small at 3.9%, based on the URA private residential price index.

“This small decline may not be an impetus for the government to tweak the measures,” comments Desmond Sim, head of research for CBRE Singapore, in an Oct 24 report.

No doubt, the fall in transactions this year has been “very painful”, says Steve Melhuish, CEO and co-founder of PropertyGuru Group.

Next year, the same level of pain is expected.

There will be increasing pressure on developers as unsold inventory continues to mount, making it a difficult year for both developers and agencies.

“However, if you are a buyer or a renter, this is a good time,” notes Melhuish.

In the current soft market, developers are focusing on finding the right marketing strategy while waiting for sentiment to change, says Teo Hong Lim, executive chairman of Roxy-Pacific Holdings.

“And sentiment can change very quickly.” Singaporeans with money to invest are holding back and waiting on the sidelines.

“Why? Maybe they are concerned that the market is in decline,” says Teo.

“That’s the perception.” While the TDSR may have curbed the appetite of property investors for Singapore property, many have looked to diversify their risks by buying property overseas, in Melbourne or London, for example, notes Teo.

As a property developer, he will likewise continue to seek opportunities both in Singapore and abroad.

“In Singapore, we will even look at buying residential development sites if the price is right,” he says.

The mantra “if the price is right” is also adopted by investors and homebuyers.

This can be seen from the sales performance at recent launches.

For instance, at Marina One Residences, 83.5% of 401 units launched were sold as at end-October; at 70 St Patrick’s, 66% of the 186 units in the project were snapped up; and at the 546-unit Lake Life executive condo, 98% of the units were sold within the first weekend of sales.

The CEO of a listed property developer rec kons it’s a good time for “contrarian investors”.

At the same time, he grumbles that even he was recently affected by the TDSR as he could not refinance his own investment property based on the limits imposed and had to stump up more cash.

“That is why you see all these sales of big-ticket items at such prices,” he says.

On the other hand, the volume of HDB resale transactions has picked up in recent months, partly due to prices having moderated, says Steven Tan, managing director of OrangeTee.

“I think that’s a good sign because it will help sentiment, as well as prices and volume of transactions, recover.” Karamjit Singh, JLL’s international director and head of residential and investment sales, sees 2015 as the year the residential market could stabilise.

A key factor to achieving stabilisation will be “the rollback of some of the property cooling measures introduced to take care of the short-term demand and supply imbalance”, he says.

“There’s been a lot of anticipation that the cooling measures would be removed incrementally.”

Singh feels that it would be better if the measures were removed sooner rather than later.

He sees the measures “artificially suppressing” transaction volume, leading to pent-up demand.

He cautions that if that continues, when the measures are unwound, there could be a surge in transactions, leading to prices spiking again.

“That’s not something that any one wants,” he notes.

In any property cycle, an upturn is always followed by a downturn.

“We’re clearly at that stage,” says Singh.

“Hopefully, next year will mark the stabilisation in the down cycle.”

This article appeared in the City & Country of Issue 654 (Dec 1) of The Edge Singapore.

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