Don't go on buying spree yet: UBS analyst

Private houses with blocks of HDB housing flats in the background around Holland Road.
Private houses with blocks of HDB housing flats in the background around Holland Road. PHOTO: ST FILE

The local property market is seeing better days but do not go on a buying spree just yet, warned a top banker.

Although prices are down 11.6 per cent from the peak in April 2013, Mr Kelvin Tay, regional chief investment officer for UBS Wealth Management, noted: "There's some form of recovery kicking in, but please do not rush out to buy another 10 properties.

"There is not going to be a strong recovery where prices are concerned.

"Our macroeconomic fundamentals are still not great. We are not recovering at our median growth rate of 4 (or) 4.5 per cent but at 2.5 per cent. That's not a strong recovery."

He told a client forum that where unemployment is concerned, "we're not likely to see a dramatic reversal of 3.2 per cent that we have right now".

Mr Tay's remarks came after Monetary Authority of Singapore managing director Ravi Menon said earlier yesterday that easing property cooling measures now would send the wrong signal.

The Government made some tweaks in March, such as shortening the holding period for the seller's stamp duty.

Mr Tay noted: "The pick-up in transactions is healthy and is one of the reasons why the property developer stocks have gone up on the index, but can this be sustained?

"To expect another 15 to 20 per cent run is quite unrealistic."

He also noted that despite vacancy rates declining, they remain higher than the average 6.3 per cent over the past 10 to 15 years.

The supply of residential units will start to ease from next year, he added, "but inventory is still very high so don't get carried away by the fact that property prices have recovered".

The story is not pretty for rentals either, be it in the residential or office space.

"Office rentals are in even worse shape. Rentals fell 3.4 per cent in the first quarter and the vacancy rate is high at about 11.6 per cent," said Mr Tay.

"This goes for all areas, whether it's the central part of Singapore or the fringe areas, referred to as Grade A or B (respectively).

"Rentals are still coming off because the economy is growing at 2 to 2.5 per cent, so you're not going to see a lot of demand for property space in the next few years."

He noted an interesting trend of more technology companies moving into Grade A office space from the outskirts.

There is no joy in retail rents either.

Mr Tay noted: "You experience it first-hand. Go to Orchard and find Far East Plaza, Orchard Central, orchardgateway or Centrepoint with a lot of empty shop lots.

"There's no real upside.

"The Reits (real estate investment trusts) have done well this year, but be very focused on the quality of the assets."

He also warned that investors should be careful with Reits and added: "Is property a good investment to hold on a medium- to longer-term basis? We don't think so.

"You're better off investing in some other asset class."

A version of this article appeared in the print edition of The Straits Times on June 30, 2017, with the headline 'Don't go on buying spree yet: UBS analyst'. Print Edition | Subscribe