Whither property prices?

From the viewpoint of a foreign developer, Singapore is continuing to grow and the Government is stable in terms of its policies, so in the long term Singapore is still an attractive place for investment, says Mr Li Jun, general manager of property d
From the viewpoint of a foreign developer, Singapore is continuing to grow and the Government is stable in terms of its policies, so in the long term Singapore is still an attractive place for investment, says Mr Li Jun, general manager of property developer Qingjian Realty.ST FILE PHOTO

The once red-hot property market has begun to slow in the wake of a succession of new rules but prices probably need to fall further before policymakers wind back these cooling measures.

That was one of the key messages from experts at a round-table discussion organised by The Straits Times late last month.

They believe that only a sharp drop in property prices within a short period, or a groundswell of unhappiness from a large number of home owners, could prompt the Government to act faster.

Home buyers were advised to wait before taking the plunge as prices are likely to get more competitive.

We take a look at some of the other topics covered in the discussion.


  • Mr Donald Han, managing director of property consultancy Chestertons; (DH)
  • Mr Song Seng Wun, regional economist at CIMB Bank; (SSW)
  • Mr Eric Cheng, group chief executive of real estate agency ECG Holdings; (EC)
  • Mr Li Jun, general manager of property developer Qingjian Realty (LJ)
  • What's the current situation in the property market, and where do you think it's headed?

DH: Looking at the residential market in particular, it's not surprising that we've seen transaction activity halving compared to the first half of last year. We've seen a slow but sure decrease in terms of pricing since the fourth quarter of last year.

At the beginning of the year we expected prices to go down 5 to 8 per cent. We think we're pretty much within the ballpark of within 8 to 10 per cent for the rest of the year.

EC: Especially for high-end luxury properties, asking prices are more realistic today. Sellers out there or even developers are giving more discounts. So we can see a trend - there could be more price dips in the third and fourth quarters of this year.

SSW: This softening was on the back of government measures... Basically the screw has been tightened. With the warning that rates may be inching up sooner or later, there's the general expectation that prices will ease.

What we have seen so far is, once prices are at levels attractive enough, buyers come through. So it's a very healthy environment that we're in.

Obviously there are risks. If there is an external shock, it could accelerate the price decline as buyers retreat. But at this point, these are healthy adjustments. We think prices may fall 10 to 15 per cent by the end of 2015.

LJ: Every market will have its ups and downs. With cooling measures, it is now more stable, more normal. Growth is at a realistic pace. That actually benefits the market because if prices rise too fast we would suffer more when the bubble unexpectedly bursts.

From the viewpoint of a foreign developer, Singapore is continuing to grow and the Government is stable in terms of its policies, so in the long term Singapore is still an attractive place for investment.

  • Should the Government lift some, or even all, cooling measures now?

EC: A lot of buyers are going for overseas properties - reports have shown that it's about $2 billion worth. The Government would want to encourage prudence in finances. But sad to say, a lot of buyers today in Singapore are buying blindly outside of Singapore.

Some of these buyers could have good cash flow, they may have a very positive income that they want to invest but because of the measures they are being caged in.

SSW: Policymakers would want to look at the overall market rather than some who have been marginalised because of the measures. If a few of them are being penalised, that's basically the cost.

If developers can cut prices and they have the flexibility to do so and they're moving properties, then let the market find its own way by itself.

  • How is this property market downturn different from previous ones such as the Asian financial crisis and the global financial crisis?

DH: In the Asian financial crisis, prices dropped about 60 per cent from the second half of 1997 to about 1999.

Then during the global financial crisis, prices dipped just under 30 per cent, which was more resilient compared to the Asian financial crisis.

Both times we had negative growth; in fact, the economy went into recession.

This time around, we don't expect the numbers to reach that kind of double-digit, 30 per cent or even 60 per cent drop as what we saw in the last two crises.

This is mainly because we've got economic growth still positive, very strong employment, very high liquidity - so much so that if the developer were to provide a compelling discount, the crowd will come. It's like bees to honey. We don't expect any rude shocks to the system.

SSW: Even if anything like that (a rude shock) were to happen and for whatever reason, policy response would be a lot faster this time round.

We have seen job schemes, and so on. Policy response would likely be introduced much quicker, to induce employment in an environment where we could have a recession but... (the impact of the) recession would probably be cushioned.

That's a huge difference. Any future downturn or recession will be a lot more compressed mainly because policymakers are on standby... ready to come through.

DH: And (what is) fundamentally different right now is banks are a lot stronger. The most liquid banks in the world are actually Singapore banks.

EC: This time round buyers are more liquid. But everyone is waiting for the herd mentality to change; no one has started buying so everyone is just waiting until someone starts.

In the global financial crisis... at that time, there were distressed sales. Today we don't really see distressed sales. And we could see distressed developers at that time.

  • Why are distressed sales unlikely this time round?

EC: Developers are still strong. They might not be investing locally but they are still investing heavily in other parts of the world. That is one of the signs of how liquid developers are today.

In 2007, 2008, I could see developers selling at a 20, 30 per cent discount, or selling below book value. Today it's a 3, 5, 7 per cent discount.

DH: Singapore is deemed as a safe haven, so there will always be money looking to Singapore - but not because it's one of the best places to earn yield. Our yields are paltry, only about 3 per cent. If you want to put your money in a high-yielding area, you don't put in Singapore.

And if you're talking about capital appreciation, there are better regions where you can make more money.

But it's about preservation of wealth - you know your money is there. When investors come from other parts of the world, their first criterion is, "Can I get my money out?"

  • Do people have deeper pockets now than they did in previous crises?

 EC: Because property prices have increased 60 to 80 per cent in the past few years, a lot of people out there have actually sold one round, or even two rounds, and they've probably cashed out.

We do get some HDB flats in Tampines, which used to sell for $320,000 in 2006 - they probably sold at $500,000 in 2009.

Today the exact HDB flat is probably asking for $800,000. The asset actually increased by easily 100 per cent in value.

DH: Over the last seven to eight years, those who own HDB flats have seen value creation doubled, and that created wealth. Those who made money started to invest in property. So it's very different from the downturns in 2008-2009.

  • If you're a policymaker today, in 12 months' time, what is the threshold where you will come in to relieve some of the pressure?

DH: I think 20 per cent is the psychological number that could trigger... because when you buy a property in the last three or four years, you would get an LTV (loan-to-value) of about 80 per cent.

So that 20 per cent drop in home values would get the banks knocking on your door saying you have to top up a little bit, so that's a trigger point.

But before we even hit the 20 per cent there will be a lot of rumbling on the ground.

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