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Redas warns of downward price spiral

Association chief says oversupply could push vacancy to new high; but not all developers share similar pessimism

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Cooling measures by the government, if left unchecked, could lead to an unintended downward spiralling of property prices, warned Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas).

Singapore

COOLING measures by the government, if left unchecked, could lead to an unintended downward spiralling of property prices, warned Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas).

Already, private housing completions from the last few years of ramp-up in government land sales are presenting "a worrying oversupply scenario" that could bring vacancy rate to a new high, he said.

However, some developers BT spoke to feel the dire prognosis is restricted to a small luxury segment and the overall market is not at high risk of a downward price spiral.

Just three weeks into his newly appointed role at Redas, the executive director of property sales at Far East Organization painted a bleak picture of the Singapore property market at the Redas Spring Festival luncheon on Friday.

"Analysts estimate that over 75,000 new private residential units will be completed from 2015 to 2019. This looming supply is likely to bring home vacancy rate to a new record high," Mr Tan said. "This will cause a further slip in home rentals and downward spiralling of property prices. For homeowners, their investments will be severely impacted... Some may be forced to sell their properties."

The vacancy rate of private housing at end-2014 was close to 8 per cent, representing a vacant stock of 24,000 units - 54 per cent more than the vacant stock in 1998 when vacancy rate peaked at 9 per cent. But the total housing stock has grown 80 per cent since 1998 to almost 309,000 units.

"As we move on, and we have a larger base of private properties - residential units, office and industrial stock, the boom and the bust, if anything, is going to be more damaging, Mr Tan said.

He pointed out that the government, on its own, may not be able to manage precisely the rate of decline in prices to reach a level that is deemed desirable for a stable property market.

On that note, he hopes that the government's macro and prudential measures will be calibrated over time, through a public-private sector collaboration in understanding the situation.

A case in point, Mr Tan said, is how prices in the luxury homes segment dived at least 20 per cent from the 2013 peak but the URA Private Residential Price Index indicated only a 5 per cent drop in private residential prices from the 2013 peak.

"They look at a wider range of prices while when we say high-end, we refer to the above S$2,800 per square foot range," he clarified with BT, adding that Redas is looking to supplement such sub-market data to URA.

Though the high-end segment is not one that the government is looking to safeguard given that not many Singaporeans buy into this segment, the imposition of the additional buyer's stamp duty (ABSD) has alienated "some high net-worth foreign investors who create jobs for Singaporeans", Mr Tan pointed out.

Developers that BT spoke to noted that the 20 per cent drop in luxury home prices cited by Mr Tan refers to a specific market segment while the overall market has a lower risk of that downward price spiral. Lim Ee Seng, chief executive of Frasers Centrepoint Ltd, said that amid concerns of falling prices and dwindling demand, well-located projects such as those in integrated commercial and transport hubs should continue to do well. "Sales have almost ground to a halt in general. But the government has enough control in terms of TDSR (total debt servicing ratio) and the seller's stamp duty to control financial prudence and curb speculation, so if it can consider easing some of the buyers' stamp duty, that will help facilitate some purchasing activities from genuine buyers," Mr Lim said.

Tan Tee Khoon, executive director of residential services at Knight Frank, agreed that while overall private home prices have come down by 5 per cent, some segments and groups of people are harder hit. "There are those who cannot buy because prices in the districts they are interested in may still be resilient and they are just waiting. There are yet others who wish to buy a second property but could be hit by a 10 per cent ABSD. There are those whose properties' capital values are waning," he said.

"As far as we are concerned, the rice bowls of property salespersons are severely impacted," he said. "With a 51 per cent drop in new home sales last year, the prospect of higher vacancy rates and impending rise of interest rates, we can expect tougher days ahead."

Grace Fu, Minister in the Prime Minister's Office, graced the Redas lunch on Friday but cast the spotlight on other topics affecting developers - that of driving productivity in the construction sector, green buildings and public hygiene in commercial buildings. She disclosed that the Building and Construction Authority is exploring more incentives to help developers overcome the initial inertia and cost premium of adopting game-changing productive technologies. Details will be out when the second Construction Productivity Roadmap is launched later this year.