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Vulcanl
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« on: 08 July 2008, 8:51:44 am » |
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Singapore Housing Hangs on Thin, Worn Thread: Andy Mukherjee
2008-07-07 18:01:00.20 (New York)
Commentary by Andy Mukherjee
July 8 (Bloomberg) -- Singapore's housing market is proving more resilient than analysts expected it to be.
As many as 3,000 people turned up last weekend to view Livia, a suburban condominium project part-owned by City Developments Ltd., the island's second-biggest property company.
Not all were there to gawk at the ``affordable green residential oasis.'' A good many had brought their checkbooks.
The company released 200 units, and 160 of them were snapped up.
DBS Vickers Research analyst Adrian Chua, who has a ``buy''
rating on the City Developments stock, termed it a ``strong response.''
``If sale numbers continue to be sustained in coming months, it would encourage a re-rating in the property sector,'' Chua wrote in a note to clients yesterday.
City Developments shares, which have fallen 20 percent this year, rose almost 4 percent yesterday.
CapitaLand Ltd., the city-state's biggest developer, said yesterday in a presentation on the Web site of Singapore's stock exchange that home prices would gain 5 percent to 10 percent this year.
It may be too early to bring out the champagne.
Livia units sold at an average of S$650 ($476) per square foot, with the bulk of the demand coming from those upgrading from public housing. That market is strong because Singapore's economy is at full employment with a seasonally adjusted jobless rate of 2 percent in the first quarter.
Trouble in Singapore's property market is brewing elsewhere
-- in the premium segment, which requires yield-seeking financial investors to support lofty valuations.
Falling Icons
After surging 72 percent in the two years through 2007, the price of freehold apartments in the prime districts fell about 5 percent in the second quarter of 2008, according to DTZ Debenham Tie Leung, a property-consulting company.
Luxury condominiums, many of which were being marketed last year as ``iconic,'' are looking vulnerable.
Take Goodwood Residence, located at the edge of the financial district. Guocoland Ltd.'s plan to sell a big chunk of this upscale apartment complex to a fund managed by Kuwait Finance House KSC's Malaysian unit has flopped.
According to a July 2 report in the Straits Times newspaper, Kuwait's largest Islamic bank is buying only 36 units in the project, instead of the 97 it planned to purchase in December.
The investor is now paying S$2,800 per square foot, or about 13 percent less than the price it agreed on in December.
Builders and buyers are locked in a battle of nerves. Each side expects the other to blink first.
Battle of Nerves
``Developers are cautious about releasing too many units,''
Chua Yang Liang, head of Southeast Asia research at Jones Lang LaSalle Inc., wrote in a July 1 note. ``Buyers on the other hand aren't willing to participate aggressively as they are anticipating prices to moderate.''
Government policy has also turned against the kind of speculation that drove Singapore home prices to their highest in
11 years in 2007.
Last October, the authorities put an end to the Deferred Payment Scheme, which allowed speculators to purchase more than one apartment under construction by paying 15 percent to 25 percent of the price upfront; their mortgage payments would begin much later, when the units were ready.
Many of these speculators may not be able to obtain bank financing for their completed properties and may have to sell their apartments at below-market prices, Barclays Capital regional economist Wai Ho Leong said in a report in May.
Inflation
The other reason investors may not want to hold on to their apartments is because inflation is making a big hole in real returns from lease rentals.
The average net rental yield on Singapore's main island is
2.3 percent, according to a report this month by Colliers International. The annual inflation rate in May was 7.5 percent.
Not only are rental yields low, they may falter for existing homeowners even more if the influx of foreign workers, who account for much of the city-state's private housing demand, slows.
``Companies are increasingly cautious in hiring expatriates and are less generous with housing allowances,'' DTZ says.
Some analysts are betting that property demand will remain firm as Singapore opens the first of its two casinos next year, creating thousands of jobs. Although that may be true for suburban condominiums, I just can't envision blackjack dealers moving into swanky Orchard Road apartments that are being constructed with bankers in mind.
Wealth Hub
It may be more reasonable to expect that as Singapore continues to attract the money of wealthy people from across Asia, the Middle East and Russia, the headcount in the local financial industry -- an important determinant of housing demand
-- may hold up. Besides, borrowing costs in Singapore are modest.
The 12-month interbank interest rate, which is the benchmark for mortgages at some of the city's banks, is currently 1.81 percent. That's low enough to spur many renters to turn buyers, especially if developers can get their pricing right.
And they must. CapitaLand and three of its real-estate investment trusts have raised a combined S$5 billion so far this year. The company's cost of finance shot up 45 percent in the first quarter from a year earlier because of subprime-related jitters in the credit market.
Raising money to carry over inventory is going to be quite tough, especially for smaller developers.
Unless Singapore builders meet housing demand at reasonable prices, the slim thread holding property values would snap. And then the decline would be as spectacular as the increase.
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