S'pore developers' sentiment dives; half likely to lower prices of new launches in next 6 months

LOCAL developers' sentiment has dived, with half of them likely to lower the selling prices of their new launches in the next six months.

Real estate sentiment indices hit a record low in Q1 2020 amid the Covid-19 outbreak.

The current sentiment index went down to four in Q1 2020, from 4.4 in Q4 2019; the future sentiment index fell to 3.5 in Q1 2020, from 4.1 in Q4 2019.

A score above five indicates improving market conditions, and a score below that, deteriorating conditions.

The composite sentiment index, a derived indicator for the overall real estate market sentiments, stood at a historic low of 3.2. The last lowest score was recorded at 3.3 in Q4 2011.

The index, first introduced in 2010 was jointly developed by National University of Singapore (NUS) Real Estate and the Real Estate Developers' Association of Singapore. But from Q1 2020, the indices will be published by NUS Real Estate (NUS+RE), which collectively represents Department of Real Estate and Institute of Real Estate and Urban Studies at NUS. The data collection, analysis and reporting will be independently conducted by NUS+RE.

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The quarterly survey is based on sentiments of senior executives of real estate firms.

All the developers surveyed worried most about the slowdown in the global economy and job losses or job decline in the domestic economy. These were the top two potential risk factors in the next six months. They were chosen by all respondents in Q1, compared to 79.2 per cent and 56.3 per cent in Q4 2019.

The risk of tightening of financing/ liquidity in debt market also surged from 12.5 per cent in the last quarter to 75.8 per cent in Q1.

The risks associated with the increased supply of new development land and the real estate price bubble / excessive speculative activities disappeared in Q1, compared to 10.4 per cent in the previous quarter.

On pricing, about half of the respondents surveyed expected new launches to maintain prices in the next six months; the remaining 50 per cent said prices are likely to be substantially or moderately lower in the next six months.

About 54 per cent projected that the new sale prices would decline by 2 to 5 per cent in 2020, and 46 per cent expect a larger fall of around 5 to 8 per cent in resale prices in 2020; 31 per cent expect new sale volume to fall by 8 to 10 per cent and 21 per cent said new sales would drop by 20 to 30 per cent in 2020.

About 44 per cent expect the number of units launched to be substantially or moderately lower in the next six months, while 25 per cent expected that the units launched will remain about the same in the next six months.

To minimise the Covid-19 impact, 25 per cent indicated that developers will use e-platforms for new launches. About 22 per cent reported that the developers would either extend project completion time or postpone new project launches to reduce the impact.

Thirty six per cent hoped the government would extend the Additional Buyer's Stamp Duty (ABSD) deadline, given the Covid-19 situation; the majority of them propose an extension of 12 to 18 months. About 18 per cent felt that the ABSD timeline should be temporarily suspended until the social-distancing measures are lifted.

"Market sentiments are likely to stay muted unless there are clear signs that the pandemic situation is improving. Firms are likely to postpone their relocation and expansion plans, and investors are seeking distressed properties. Some segments of the market, such as the hotel and serviced-apartment segments, will take longer to recover," said Lee Nai Jia, Institute of Real Estate and Urban Studies deputy director.

The investors looking for distressed properties are hoping for 50 per cent fall in prices, but so far prices have been "very stable", he noted.

"Such opportunties haven't come on board."