 Hopes
of property market rebound fading
Uncertain economy, housing glut fears seen taking toll on developers
HOPES that a slowdown in Singapore’s property market is temporary
are fading as an uncertain economic outlook and a looming housing
glut threaten to plunge the sector into a prolonged downturn.
Homebuilders such as CapitaLand, Keppel Land and GuocoLand have
delayed launching new projects in the moribund market, taking a hit
to first-quarter earnings as they hoped for a rebound later this
year.
Prospects could be dented further in coming months if smaller
developers face financing troubles and have to unload properties at
massive discounts. Some have gorged themselves on expensive land
acquisitions over the past two years.
With home prices expected to fall 30 to 40 per cent over the next
three years, Singapore’s developers could be badly hit and analysts
may slash their earnings estimates further.
‘This is the start of a multi-year price correction. Private
residential property prices could easily fall by up to 30 per cent
by 2010,’ said Barclays Capital economist Leong Wai Ho.
Credit Suisse in a report this month saw rents and property prices
falling even more steeply by as much as 40 per cent, and downgraded
its investment recommendation for the sector to ‘underweight’.
Warning signs have been flashing as first quarter 2008 sales volumes
slumped to the lowest in five years and price growth slowed for two
straight quarters, with concerns about a global economic slowdown
and the US sub-prime mortgage crisis scaring off potential
homebuyers.
Mr Leong said an impending oversupply will worsen the problem, with
66,000 new homes expected to be completed over the next four years,
against forecast demand for 50,000 in the same period.
The three-month Singapore Interbank Offered Rate - a benchmark for
mortgage loans - has fallen to near record lows below 1.3 per cent,
but that may not be enough to revive buyers’ flagging confidence,
economists say.
‘Negative real interest rates will be at best a cushion, rather than
a boost to housing demand in the near term, although they could lift
property demand if and when sentiment turns,’ said Citi analyst Kit
Wei Zheng.
‘The worst is yet to come and price cuts are imminent,’ said ABN
Amro analyst Fera Wirawan.
BNP Paribas has flagged high financial risks for small developers
including Bukit Sembawang, Low Keng Huat and Lian Beng, which have
almost all their debts due within a year. Even major builders such
as Allgreen, Keppel Land and GuocoLand could face difficulties after
steep drops in profit in the last quarter as they launch fewer
projects, analysts say.
Slower sales and rising costs could raise developers’ gearing or
debt-to-equity ratio to dangerous levels above 70 per cent, up from
the industry average of about 62 per cent.
‘We identify three developers, namely Allgreen, GuocoLand and Keppel
Land, that could face some pressures on cash flow,’ JPMorgan analyst
Christopher Gee said in a report, noting that gearing levels could
be pushed up to between 80 and 130 per cent.
The risk of price falls has been heightened by property speculators
buying in recent years with little upfront cash, relying on a
deferred payment scheme. The government scrapped the scheme last
October in a bid to cool down the sector.
Analysts expect speculators will dispose of about 700 units on the
cheap this year, and another 2,000 next year, as the properties near
completion and instalments are due.
Some developers are still counting on home prices in the city state
to rise for at least another year, as they see the market in the
middle of an upswing even as the US housing market grapples with its
worst downturn since the Great Depression.
‘This is a temporary hiccup. We just had a boom starting in 2006 and
it’s usually a seven-year cycle,’ property tycoon Kwek Leng Beng,
who heads Singapore’s No 2 developer City Developments, told
Reuters. The property market will be supported by greater foreign
investments as Singapore sees the completion of two casino projects
and the influx of major events such as Formula One races and the
Youth Olympics over the next few years, Mr Kwek argued.
But Barclays’ Mr Leong said his bearish scenario, which calls for a
near one-third drop in property value, already takes into account
any boost resulting from these economic developments. ‘It’s not the
worst-case scenario. This is the most likely scenario based on the
numbers,’ he said. — Reuters
Source : Business Times - 22 May 2008
Banks see plunge in home prices in next two
years
New homes, rising vacancy rates, unsold condos and fewer rental
deals cited as reasons
THE slowdown in the Singapore housing market has prompted two banks
to predict a dramatic plunge in home values in the next two years.
In two starkly bearish reports, Barclays Capital and Credit Suisse
have forecast drops of up to 40 per cent in home rents and prices,
as demand and supply dynamics move in favour of buyers.
The reports, issued in the last two weeks, pointed to the malign
cocktail of a flood of new homes coming on the market, climbing
vacancy rates, a rising number of unsold condominiums and fewer
rental transactions.
They also raised concerns about the possible dumping of units by
speculators. Barclays said that should this happen, private home
prices could slide 28 per cent to 30 per cent by 2010.
Credit Suisse predicted a possible 40 per cent drop in rents and
prices. Its analysis showed that sub-sale prices recently started to
dip at several developments.
Both banks also noted that developers were now more generous with
price cuts, stamp duty rebates and agent commissions in an effort to
move units. They warned that smaller developers were likely to
‘break’ first.
‘Just six months ago, City Developments and a few others gave zero
commissions to agents,’ Credit Suisse said. By March, most were
giving 1 per cent to 5 per cent, an increase of three to 10 times in
just six months.
‘When Singaporean developers start to reach out to agents with
higher commissions, you know they are feeling the pain,’ it said.
The pain is coming from slower growth in home rents and prices, as
the effects of the United States sub-prime mortgage crisis takes its
toll on market sentiment in Singapore.
Private home prices rose a smaller-than-forecast 3.7 per cent in the
first quarter. Even then, Barclays analysts said this could have
been boosted by a handful of high-priced transactions and ‘may not
reflect the depth of pessimism in the market’.
Sales and launches of new homes also fell sharply last month,
extending the slump.
Mr Colin Tan, the head of research and consultancy at Chesterton
International, agreed with the Barclays report about a correction in
prices.
As more new homes are completed over the next few years, he said,
rents will feel the pressure and prices will start to fall.
Not all property analysts, however, have such a gloomy take on the
housing sector.
Kim Eng analyst Wilson Liew believes the oversupply situation may be
overstated. While there are 32,000 units being built and 42,000 more
in the pipeline, current market sentiment could help slow the rate
at which the planned units come onstream.
‘It is likely that most of these units would be deferred
indefinitely until sentiment returns or when construction resources
ease,’ he said.
Developers could also keep lands in their landbank rather than
develop them if there is no demand, suggested Macquarie Securities’
head of Asean research, Mr Soong Tuck Yin.
Both he and Mr Liew believe the upcoming integrated resorts will
give Singapore a boost and, while there may be a temporary weakness,
home prices are unlikely to collapse.
Mr Soong also said developers had stronger balance sheets now than
in previous market troughs, and the current low interest rates and
high inflation could lead people to buy properties as a hedge
against inflation.
The Credit Suisse report, however, said negative real interest rates
- often touted as a driver for property purchases - had not
historically helped home sales. It also said that even with
construction delays, actual completions had usually come in higher
than forecast.
Source : Straits Times - 21 May 2008
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