THE real estate roller coaster that developers have ridden in recent years has taken a sharp turn, thanks to United States sub-prime woes, and left the industry wondering what is coming next.
‘Six months ago, we were concerned about the market exuberance,’ said Mr Simon Cheong, the president of the Real Estate Developers’ Association of Singapore (Redas), yesterday. ‘These coming six months, we will be wondering when the market will turn around.’
After an exceptional year of strong prices and sales, the sector has slipped into the doldrums, with buyers and sellers taking cover from the onslaught of a global economic uncertainty, America’s sub-prime mortgage crisis, stock market turmoil and escalating building costs.
Mr Cheong told a Redas Chinese New Year lunch: ‘Though Asia’s economy has a strong buttress – China – the temporary effect of weak sentiment from sub-primes will affect buying for at least the first half of this year.’
Sellers are also lying low, with developers delaying launches and pushing back project completion dates amid the construction squeeze.
Building costs have climbed at an ‘unprecedented rate’, added Mr Cheong, who is also chairman and chief executive of SC Global Developments. ‘What is clear is that developers are bearing the brunt of higher construction costs. Something’s got to give eventually.’
Developers will have to factor in high construction costs when they replenish their land bank, he said.
However, in the longer run, the market outlook is favourable, considering the Singapore economy’s sound fundamentals.
‘Rental yields will eventually dictate and underpin what capital values will be for property,’ said Mr Cheong.
The expected slowdown in supply will support the rental market.
Minister of State for National Development Grace Fu told the media during the lunch that the market may be quiet, but prices are firm while demand for commercial property is still resilient.
Those sentiments were echoed by consultancy Savills Singapore, which expects the office sector to stay buoyant.
Deputy managing director Simon Smith told a press conference that average prime rents should match Hong Kong’s by the second quarter and surpass them by year-end.
This is because Hong Kong will see a lot of new supply coming onstream this year while Singapore’s supply will remain tight in the short term, he said.
But higher rents in Singapore may not be enough to push businesses to Hong Kong. ‘Many clients we see switching between the cities tend to do so because of strategic reasons rather than cost reasons,’ said Mr Smith.
Source: The Straits Times 22 Feb 08