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Roaring Again
2009 was a hard year for Singapore’s property market. Will 2010 be better?
| Text : Alex Frew McMillan | Photo : www.stockxpert.com |
Last year seemed a lot longer than 12 months in Singapore. The year began in total panic, with a mass sell-off of residential real estate, only for the market to pull a 180-degree turn in a matter of months. Then, by the end of the year, the government was making noises to calm the property market down.
“There was so much fear last year but this year is totally different,” says Ong Choon Fah, executive director and head of consulting for Southeast Asia for DTZ Debenham Tie Leung. “Now we’re looking at liquidity and whether the gains are sustainable. The government is trying to prevent a bubble.”
According to the Urban Redevelopment Authority, the Lion City’s property ended the year more or less where it began. For the entire 2009, prices increased by 1.8 percent. Thanks to the exceptional price hikes in the third quarter, from July through September, the average price of private residential property in Singapore jumped 15.8 percent then.
That pace couldn’t be sustained, and the gains were slowing as the year came to a close. Prices for the fourth quarter rose by half that rate, or 7.4 percent.
The rapid gains were partly a product of a new tactic from developers. Looking to tap demand at the lower levels of the property ladder, they began introducing ever-smaller units or the so-called shoe-box or Mickey Mouse apartments, aimed at first-time buyers. The complexes were mostly brought to market by small developers, who charged low overall prices that were nonetheless high for the size.
“In March and April, developers started to build really small apartments, 300 to 500 square feet, which was really quite unheard of before,” Ong says. “That pushed the price per square foot upwards.”
Thanks to the activity at the lower end of the market, it was property in less fashionable parts of Singapore that recovered first. The URA’s “outside central region” rose 11.8 percent over the course of 2009, while properties in the “core central region” fell marginally, by 1.8 percent, and in the “rest of central region” rose by 3 percent.
Faced with very tough times in finance and shipping, two of Singapore’s economic mainstays, it was luxury property that suffered the most in the downturn, slumping as much as 40 percent. But the finance industry is starting to hire again in Singapore, bringing in expatriate employees that spur demand for high-end rentals. After a brief recession, the government now expects economic growth of 3 to 5 percent this year, underpinning modest wage gains.
Luxury developers are now rushing to bring their developments to market and drawing a lot of publicity. The first casinos, the Resorts World Sentosa and the Marina Bay Sands, open this year after a delay in during the financial crisis. Both were originally slated to open last year but were delayed.
Looking to capitalise on the high-end demand, in January YTL Corporate launched Kasara The Lake, a luxury development on Sentosa, and sold six of the 13 villas at prices ranging from S$14 million to S$22 million (HK$77 million to HK$121 million).
There’s also been increasing interest in Singapore property not only from the city’s traditional investors based in Indonesia and Malaysia but also from new markets such as China and India. There was S$5.9 billion (HK$32 billion) of investment property bought in Singapore last year, 84 percent of it in the second half of the year.
Thanks to local and overseas demand, residential property fared better than any other sector in the aftermath of the financial crisis in Singapore, with office property down 16.4 percent for the year, industrial property slumping 14.4 percent and retail off 6.1 percent.
Ong says a mass-market apartment in the suburbs would now cost about S$1,000 (HK$5,500) per square foot, while a luxury apartment or condo in the prime districts of 9, 10 and 11 will fetch around S$2,500 (HK$13,750) per square foot.
Rents, which fell sharply, have begun to turn around, with residential rents up 0.6 percent in the fourth quarter. That may indicate it is a good time to strike a deal on a new apartment. For the entire year, rents were down 14.6 percent as the impact of the financial crisis made itself felt.
Despite lower rental income, investors are still seeing what is known as a “positive carry”, meaning that even when you take into account the cost of money involved in borrowing for a mortgage, a rental property will pay for itself and leave a little profit.
“We have a very low interest rate environment, so there is still a positive carry, and you’re seeing around a 3 percent yield,” Ong says. In other words, you can make back 3 percent of a property’s purchase price in rents over the course of the year.
DTZ forecasts that, if the economic rally stays on track, Singapore property should rise 10 percent this year, perhaps more for luxury property.
“Affordability is a constraining factor in the mass- market segment, and any price increase in this segment will depend on the job market,” the brokerage wrote in a report.
The URA says that there were 60,476 uncompleted private units in the pipeline at the end of last year, but only just over half of them, 34,234, are still available now.
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