Singapore Real Estate Market Review - July 2008

Introduction 

June 2008 was overshadowed by the media hype of a number of public launches of mid-market new home projects such as Dakota Residences, Clover by the Park, Parc Sophia and the high-end Nassim Residences.

The URA’s announcement of the 55% jump in the sale of private new homes in the preceding months added some dressings to the shop-window, but to the initiated, the underlying truth is not as ‘Ra Ra’ as that on the surface. This is because the huge percentage increase was a result of a very pathetic showing in the preceding months
(See Table [1] below).

There is definitely some media hype being built up in the past weeks to dilute the fact that seller’s price have been shaved off some 10% to 15% and more new projects to be launched soon will come with more humble price tags. While the market forces are being played out, it won’t hurt to bring in some drum beats.

Table [1] – monthly primary sale figure from January 2008

Source of info: URA website

Private property prices may have reached its plateau

In terms of prices, the price growth in Q2 2008 was much slower than Q1 of this year.

Table [2] – Prices of condos/apartments went up by the following percentages

For the first time since the second quarter of 2007, private residential property price growth has almost halted for CCR and RCR. Even though prices in OCR have appreciated, they are actually crawling out of the valley as this particular region had missed most part of the bull-run last year, for example, some new private condo projects in Bukit Panjang, Sengkeng, Yishun areas did not do very well since the middle of 2007.  

In short, June 2008 may mark the beginning of a slower growth phase with a probable gradual decline in price trend. This may trigger off the ‘competition to sell’ among housing developers in Singapore as more completed new homes are available for occupancy.

(A) Uncertainties reign in the larger market

The global situation, especially the decline of the US economy and the soaring food and oil prices, remains the vital factor affecting the property market performance in Singapore. June ushered in some mixed indicators which, taken together, provides a blurry, wobbly and ‘out-of-focus’ image. In short, the market prospect is still uncertain in many ways.

The ongoing energy crisis and massive inflation have definitely plunged the world into a greater depth of chaos in June this year. Most legitimate governments in the world, from the US to England, PRC China to South Korea, and from Thailand to Indonesia are facing mounting pressure every each day from their own people stricken by soaring food and energy prices. Singapore is perhaps the only exception - this is a place where calm and reasons prevail. TV images of fare cheats being caught at MRT stations presented a sharp contrast to all the video footage of unrest and chaos in the rest of the world.

In June, Singapore witnessed the record-breaking CPI inflation figure standing tall at 7.5% while the mass transport companies are stretching out the long arm of the law rounding up all fee dodgers (also called fare cheats) with a strong sense of mission. The ironic picture tells not a thousand but just three words, that is, ‘times are bad’ – even for the big boys.

Here are some market highlights in June that may provide the cues for the property market direction in the near term.

• (A.1) Worries of poor corporate earnings due to inflation sidelined fund managers

A Merrill Lynch global survey released in June showed that the vast majority of fund managers believed that inflation is the greatest single threat to financial market stability.

As the fear of stagflation – defined as massive inflation during a period of economic stagnation – gains currency, fund managers are moving away from the stock markets and preferring to hold more cash in hand. This is because a majority of the fund managers believe that corporate earnings would be hard hit if the current situation persists.

In the survey, 27% of fund managers said that stocks are overvalued compared to only 5% in March 2008. Compared to 25% in March, only 1% said that stocks were undervalued.

The Asian stock markets have been particularly hit by such apprehension as US$4.66 billion (S$6.4 billion) of Asian stocks have been dumped by the foreign fund managers.

Shanghai has been the worst hit with 46% of its capitalization wiped out. Only less than 8% of the stock punters there had made money this year. Singapore is the second hardest hit with 13% of shares value wiped off.

•  (A.2) Top of US government’s worries are oil prices and inflation

The US Federal Reserve Chairman, Ben Bernanke is a worried man. While it is very clear that there will not be any further rate cut or hike, Bernanke warned that economic activity will still be weak in the second quarter of 2008.

The unemployment rate hit 5.5% in May and rising oil prices are putting pressure on growth and causing the very severe inflation to spread. While the US$168 billion stimulus package is said to have eased the credit crunch and housing woes, the Fed Chairman said that the government will continue to monitor and take remedial actions when necessary.

• (A.3) Job layoffs amidst uncertain global outlook

Domestically, a cause for worries is the number of layoff from the high-value manufacturing sector. Though more new jobs are created, they are in the low-value-adding construction sector which employs mostly foreign construction workers.
 
The latest job figures released by the Ministry of Manpower (MOM) confirmed the state of flux in the Singapore job market.

In March the unemployment rate was 2%, up from 1.7% in December 2007 whilst job vacancies jumped from 37,400 to 38,200 in the same period.

At the same time, a still tight labour market pushed nominal earnings in the first quarter of 2008 (Q1) up 11% over the year - much higher than the 4.3% in the preceding quarter (Q4 2007) and 5% in Q1 2007.

MOM also added that employment continued to expand strongly in a healthy economy, but were cautious about the future due to an uncertain outlook.

• (A.4) Capital inflow to Asian real estate to continue

 However, there is some good news. Spooked by the grime prospect of the housing crisis in the US and UK, many overseas real estate funds are heading towards Asia. A recent report by KPMG noted that the inflow of capital into Asia's real estate market is accelerating and the momentum will continue due to higher returns in Asia.

Total investment in the region has continued to increase, growing by over 27% in 2007 to reach US$121 billion with Japan grabbing half of the pie and China following close behind.

Japan accounts for half of 2007’s real estate transactions and China continued to produce attractive returns for investors.

•  (A.5) Singapore ranked world 6th in fastest growing millionaires

A report by Merrill Lynch and Capgemini showed countries in Asia and the emerging markets have been ranked in the top ten as having the fastest growing wealthy population in 2007 with Singapore coming in sixth. The report tracked the wealth of the world's high net worth individuals - defined as those with investible assets of US$1 million.

For Singapore, the report finds that the number of Singaporean wealthy individuals rose 15.3 per cent to about 77,000. The average wealth per individual is estimated to have risen from US$4 million previously to US$4.9 million. This is higher than the global average wealth per high net worth individual (HNWI) of about US$4.04 million.

As for the type of investment, the report pointed out that more and more of the wealth are being placed in cash and fixed income assets. The expected economic slowdown has caused the wealthy to move away from parking their money in real estate and towards currencies.

Though not entirely good news, it at least provided clues that the HNWI may return to real estate investment in near term when the financial crisis has been resolved.