Signs of cheer for property, but don't break out the bubbly yet

Singapore

DESPITE signs that the property market is on an upward trend, it is still too soon to indicate that the market is finally recovering, said Augustine Tan, president of the Real Estate Developers' Association (Redas) on Friday.

At a property market seminar organised by Redas, Mr Tan highlighted the tweaking of cooling measures in March, and active participation by developers in Government Land Sales (GLS) tenders with record high prices as signs that the property market could be on the road to recovery.

However, he said: "While these are signs that hint at the property market trending up, it is still too soon to indicate that the market has finally turned positive and recovery has kicked in."

This is because of other wider macroeconomic factors weighing on the economy. "Our macroeconomic fundamentals are still not strong. The global economic growth continues to be anaemic amid geopolitical risks and rising US interest rates."

Mr Tan said there was a supply glut in the inventory of private residential units. "The inventory of private residential units will remain high with a supply overhang of about 37,000 uncompleted units as at Q1 2017, of which nearly 16,000 units or 43 per cent are still unsold.

"At the current new private residential transaction volume of approximately 8,000 units in 2016, it will take around two years to absorb the existing stock, barring unforeseen circumstances."

He also said the government has released a further potential supply of 8,125 private residential units for H2 2017 through its GLS programme, and that in the collective sales market there are about 25 potential sites comprising about 5,300 units, further adding to supply.

Mr Tan said: "Our concern is if the prevailing 'bullish' appetite for residential land persists amid pending rising interest rates and weak employment prospects, demand will weaken over time and hasten the compounding effects of increasing supply and high vacancy."

Other analysts, however, were more sanguine in their outlook. Hospitality Strategies Asia Pacific managing director Donald Han said Singapore's residential market is bottoming out, and he anticipates a rise in economic activity in the next six to eight months, barring any unforeseen shocks.

He believes that rapid price rises are unlikely as the government will use GLS tenders as a tool to meet the strong demand from developers as long as current cooling measures do not change.

However, despite the higher land prices, he said developers needed to price project launches competitively - at the expense of profit margins - as the market remains price sensitive.

For the whole of 2017, he expects developers to sell between 10,500 and 11,500 units (excluding EC units).

Mr Tan said that as at Q1 2017, the vacancy rate of completed private residential units improved marginally from 8.4 per cent to 8.1 per cent compared with the previous quarter.

In the industrial sector, Lee Nai Jia, head of South-east Asia research at Edmund Tie & Co, said the sector has generally "not moved since (this time) last year".

He said the net supply of multiple-user factories increased from 970,000 sq ft in Q4 2016 to 980,000 sq ft in Q1 2017. The net demand for multiple-user factory space as measured by change in occupied stock increased from 797,000 sq ft in Q4 2016 to 883,000 sq ft in Q1 2017. The occupancy rate has remained stable at 86.9 per cent in Q1 2017 quarter-on-quarter.

For business parks, Dr Lee said there were no completions or terminations in Q1 2017, compared to 32,000 sq ft of net completions in Q4 2016. The net demand reduced from 474,000 sq ft in Q4 2016 to 237,000 sq ft in Q1 2017. The occupancy rate increased by 1.2 per cent quarter-on-quarter to 82.5 per cent in Q1 2017.

Office prices and rentals have declined 4 per cent and 3.4 per cent respectively in Q1 2017 compared to the previous quarter, said Mr Tan. Office vacancy rates also rose to a high of 11.6 per cent islandwide in the same period.

He also said the islandwide retail sector vacancy rate rose from 7.5 per cent to 7.7 per cent, and industrial sector prices and rentals fell 12.3 per cent and 6.1 per cent respectively in the same quarter.

Mr Tan added: "Against this backdrop, business and consumer confidence could be weakened, further dampening investment and consumption."