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The second half real estate market told a very different story from the first half. The global situation has worsened since last August with the revelation of the sub-prime mortgage problems in the US effectively sidelining the majority of buyers. While the whole year records look impressive, the detailed numbers of the second half results were worrying, to say the least.

(1) The world may go into recession following the cues from the US

The huge losses experienced on the first day of Wall Street augur ill for the entire global economy. Year 2008 will be a volatile and difficult year for the US – the world’s largest economy. The US domestic economy will slow down due to the financial market woes.

The housing crisis in the US is far from over and the credit markets and still saddled with bad debts. With write-offs of over US$40 billion by banks looking to clear their books of sub-prime loans and investments, 2008 looks set to be more of the same story.

This will certainly drag down the entire economy and put pressure on corporate earnings. The crisis is affecting everybody, not just the financial sector.

The threat of recession, inflation and even stagflation cannot be dismissed. It appears that 2008 will be amongst the most challenging market environments facing the US and the rest of the world in many years.

(2) Massive inflation causing entire market to be jittery about 2008

As houses become more expensive and prices of food and petrol continue to climb, Singapore inflation rate could hit a high of 6% in the first three months of 2008.

With an 18% to 25% upward revision, the increase in annual values of properties is significantly higher this year and the quantum of the recent taxi fare hike, food price and oil price increases are all much higher than earlier expected. As such, the inflation rate this year will exceed the Monetary Authority of Singapore’s forecast of 3.5 to 4.5 per cent for 2008.

The consumer price index (CPI) surged 4.2% in November 2007 year on year, a 25-year high. And housing value has a significant weight in the CPI.

However, the irony facing Singapore is that a likely US recession this year could ease inflationary pressure with demand for essential goods and oil going lower as a result.

(3) Inflation but a falling real estate rate

With the cheapening of US dollars, more foreign investors are bringing their funds into the Singapore system in bid to salvage the value of the money they are holding. This has resulted in two developments: firstly, an asset price inflation, and secondly a falling interest rate.

The two phenomena do not usually occur together. When they happen, that is, rising asset prices despite a falling Sibor (Singapore Interbank Offered Rate), asset price inflation will escalate.

The three-month rate has fallen from 3.44% a year ago to 2.13% in the second week of January 2008. This is a negative real interest rate as the bank’s interest rate is lower than the inflation rate.

The challenge this year for Singapore economy is how to stave off the possibility recession in the US. There will be a second round of gradual appreciation of Sing dollar against the US dollar. It is expected that Sing dollar will appreciate against the US unit from 1.43 at the end of the first quarter to 1.39 in the same period in 2009.

(4) Foreigners account for a quarter of total residential sales

Foreigners and permanent residents (PRs) chalked up 7,902 sales from January to November, which accounted for 24.9% of total residential sales so far.

The sales figures are the highest in 13 years, due to a robust regional economy and increasing arrivals of expatriates in Singapore.

Institutional investors also entered the market in a big way, picking up anything from several units to whole condo blocks and even development sites. They include Macquarie Global Property Advisors, Goldman Sachs and United States-based Wachovia Development.

The buying momentum propelled high-end condo prices pass the $4,000 psf mark and surged past the $5,000 psf mark for the very first time in local history. A 53rd floor 5,048 sq ft penthouse unit at The Orchard Residences went for $5,600 per sq ft in October, or slightly more than $28 million.

All thanks to participation of foreign buyers, other developments that have registered sales of above $4,000 psf include Hilltops, Ritz-Carlton Residences and Scotts Square.

In the meantime, MAS data shows deposits by non-residents totalled $29.8 billion in October 2007. Compared to 2002, the deposits were only $10.6 billion. Foreigners not residing in Singapore are not allowed to open bank accounts here in Singapore but the rule does not apply to individuals who intend to invest in real estate in Singapore.

(5) Foreign investment funds are top buyers of Singapore real estate

The total investment sales volume so far this year is $50.78 billion. Likewise, foreign funds are responsible for the majority of the purchases of investment properties. These foreign funds include names like Macquarie Global Property Advisors (MGPA), US-based Goldman Sachs, US-based Wachovia Development Corporation, German SEB and Dubai World Group – with MGPA topping the chart with $4.3 billion of purchases.

(6) One million foreigners making Singapore home

Singapore’s population is 4.68 million. This number has been contributed by qualified foreigners coming to Singapore in drove – to be exact 1,005,500. This is the highest number of immigrants in more than twenty years and the first time Singapore receives over a million new immigrants.

In terms of percentage rise, this year’s increase is 14.9% compared with last year which also achieved an impressive growth at 9.7%. The number of Singaporeans and permanent residents here also grew 1.8%, the same as the previous year.

In terms of population increase, the one-million-addition makes up a 4.4% rise over the previous year. The last time Singapore enjoyed a higher increase in population was in 1982 where population grew by 4.5%.

(7) Sales in the second half of 2007 were not as brisk the first

Despite strong overall sale figures for the whole year, the actual situation on the ground (especially towards the end of the year) was harsher than it appeared on paper. Let’s look at two aspects of the general market: (a) transaction figures; and, (b) marketing period (as such per listing’s holding costs).

(7.1) Transaction figures

The allure of oceanfront living at Sentosa Cove and Keppel Bay can be seen in the second half of 2007. Despite a general weakness of the market, District 4 continues to attract strong demands from foreign buyers.

(7.2) Marketing period and holding costs
Listings took longer marketing period to sell, if they are sold at all. Below shows the statistics of marketing period (therefore holding costs) for every listing sold.

Written by Sam Gian - Independent Real Estat Sales Trainer