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Redas-NUS index throws up mixed signals

Developers' mood improves, but more see sliding prices in next 6 mths
Friday, February 7, 2014 - 06:00

[SINGAPORE] Developers' sentiment may have improved marginally in the fourth quarter of 2013, but concerns over potential declines in residential property prices and rising costs continue to cap their outlook.

In the latest Real Estate Sentiment Index (RESI) survey, the Composite Sentiment Index that captures the overall market sentiment of property developers increased to 4.0 in the fourth quarter of 2013, up from 3.9 in the third quarter.

The Future Sentiment Index also edged up to 4.0 from 3.9 over the same period.

In this index, developed by the Real Estate Developers' Association of Singapore (Redas) and the National University of Singapore, a score under five is a flag for deteriorating market conditions.

But some 62 per cent of the developers surveyed anticipate a moderate decrease in residential property prices in the next six months, up from 51.3 per cent in the third quarter.

The mixed signals in the survey reflect market uncertainties, said Ku Swee Yong, chief executive of property consultancy Century21. "This is solid evidence that we are uncertain about the prospects of the market over the next six months."

Some 39 per cent of the developers surveyed expect new property launches to hold at the same level in the next six months while 22 per cent expect moderately more launches and 14 per cent indicated that they would launch substantially more units, up by 11.3 per cent from the preceding quarter.

"Unless there are changes to external factors affecting the real estate market, the sentiments are expected to hold for (the) time being," said a survey respondent. "The sentiment will not be improving because government will intervene to cool the market."

Prime and suburban residential sectors were the worst-performing segments in the fourth quarter.

Sentiment in the prime residential segment showed a current net balance of -53 per cent and a future net balance of -44 per cent while the suburban residential segment showed a current net balance of -47 per cent and a future net balance of -57 per cent.

The net balance is the difference between the proportion of respondents who were optimistic and those who were pessimistic.

In a bid to cool the residential property market, the Singapore government introduced the TDSR (Total Debt Servicing Ratio) framework last June, requiring financial institutions to consider borrowers' outstanding debt obligations and ensure that their monthly debt obligations stay within 60 per cent of their monthly income. This has since dealt a blow to developers' sentiment.

"The cooling measures are taking effect. It depends on how the market reacts for developers to moderate lower price launches on new units," said another survey respondent.

"Developers who do not have any holding power may dispose units at further discounts at about 3-5 per cent. However, a market crash is unlikely due to fairly strong underlying demand."

Seen as more resilient, the office segment is viewed by developers as the best performing with a current net balance of +27 per cent and a future net balance of +20 per cent in the fourth quarter.

Developers expressed concerns over rising costs, with 46 per cent of the respondents saying that they are very concerned about higher land costs and 54 per cent flagging concerns about labour costs.

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