Despite Singapore’s worst economic slump since independence, the residential property sector is in the midst of a new boom reminiscent of 2007, when the city-state was known as the world’s hottest real estate market.
Greed and its twin brother fear are back in play as punters stake out condo launches days before sales open, with some offering blank cheques to pre-book flats, prompting the government to hint it may have to cool things down.
“Some of the practices and habits that you saw in the last property boom are beginning to come back, so I think we’ll have to be careful,” said Minister for National Development Mah Bow Tan, whose portfolio includes housing.
“A little bit of speculation is inevitable in every market, but when it becomes excessive, then it is something that we should try to avoid,” he said.
The minister’s words of caution fell on deaf ears.
A 297-unit condo called Optima in the extreme east – well outside prime districts – sold out in within three days in early August after Mah’s warning, fetching as much as S$2 million (US$1.38 million) a unit.
The developer had to issue ballots “to address the needs of the genuine buyers” and disperse the huge crowd that turned up for the launch of the project, which will only be ready for occupancy in 2014, a spokesman said.
Within days, some units were already being advertised for resale in the secondary market.
An AFP reporter who recently walked into the sales office of another high-rise condo being built close to the Orchard Road shopping belt was treated like royalty by agents expecting to close deals within days, if not hours.
Bank officers were ready to process loans on the spot.
“Buy before prices go up further,” an agent whispered in his ear, gesturing to a “sky garden” bisecting the scale model of a glass-clad, 45-storey tower.
Singapore’s economic output is officially forecast to shrink by four to six per cent this year – less severe than earlier estimates, but still its worst economic performance on record – and office rents are still soft, reflecting weak business activity.
“It is too early to celebrate,” Prime Minister Lee Hsien Loong warned over the weekend as he spelled out the country’s economic prospects. “The outlook remains clouded.”
The property frenzy began in middle-class condo projects due to pent-up demand from families upgrading from public to private housing but scared off by the 2007 price spiral.
Their enthusiasm quickly spilled over to more exclusive developments.
Prices of luxury condos – the segment worst hit by the recession – are now inching toward peak levels achieved around mid-2007, according to an analysis by business weekly The Edge.
Foreign investors, including Asians looking for a secure place to park their money, are also back in the Singapore market.
Singaporeans enjoy one of the world’s highest savings and home ownership rates, but most live in relatively spartan government-built flats, making owning condos an obsessive goal for families.
A pension system forces them to save more than a third of their monthly income, and the accumulated funds can be tapped before retirement to buy property, creating a massive pool of financing ready to be used when market conditions are good for buyers.
Chua Chor Hoon, senior director and head of Southeast Asia research at property advisers DTZ Debenham Tie Leung, said various factors combined to spur renewed buying in Singapore properties.
Signs of economic recovery, the stock market rally, the imminent completion of massive casino resorts, low interest rates and lack of confidence in complex financial products encouraged property buyers.
Asked if the government will have to intervene to stop a bubble from forming, she said: “There’s froth but no excessive speculation.”
“The government is likely to increase the supply of housing units through the sale of government land and monitor the situation first.”
Chua Yang Liang, head of Southeast Asia research at Jones Lang LaSalle, said demand is largely driven by buyers upgrading from government housing due to strong wealth creation in recent years, and the shrinking gap in cost between public and private housing.
“However, unless we begin to record positive growth in the larger global and domestic economies, the recent spike in demand and prices is short-lived and could cause asset driven inflation in the longer term, especially if wage increases do not keep pace,” Chua added.
“In our opinion, there isn’t enough compelling reason for the state to want to interfere into the market phenomenon just as yet, unless it affects the overall affordability for the masses and causes asset-driven inflation in the economy,” Chua said.
Source : Channel NewsAsia – 12 Aug 2009