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2012 Outlook on Property: Singapore Property to Moderate Next Year

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by Ernie B. Calucag

For most home buyers in Singapore, the year 2011 can be characterised as one big roller coaster ride as the market had to contend with an additional sellers’ stamp duty at the beginning of the year, and an additional buyers’ stamp duty (ABSD) just as the year is about to end.

Even so, home-buying interests remained healthy this year. In the first 11 months of 2011, developers had sold 15,393 private homes and 2,855 executive condominiums (ECs). For the whole of last year, developers sold 16,292 private homes and 1,052 ECs.

But it will be a different story for 2012. Analysts say the two rounds of cooling measures, coupled with the expected economic slowdown, may usher in a moderate property market as home prices and sales volume are set for a significant correction next year.

“It is projected that there will be a price correction of approximately 15 – 20 per cent in the central core region and 10 -15 per cent in the mass market segment for the next six months,” said Mohamed Ismail, CEO of PropNex Realty.

“Potential buyers will now wait out to see the impact of this latest cooling measure and its correction before entering the market again. A foreign buyer of a private property here in Singapore will have to take a very bold move in investing amidst the global crisis and a grim economic outlook in 2012,” he added.

The Monetary Authority of Singapore (MAS) expects the nation’s economic growth for 2011 to be about 5 per cent, before slowing to 1 to 3 per cent in 2012 on expected weaker demand from developed economies.

Taking into account the economic outlook and likely effects of the new measure, the Development Bank of Singapore in a report said take-up for new homes sales in 2012 could potentially fall between 11,000 and 12,000 units.

“We note that in the last three rounds of cooling measures, housing demand picked up a month after the announcement of the government measures. However we think such a rebound is unlikely this time round given the severity of the measures,” DBS said, referring to the ABSD in which foreigners were hardly hit.

For some analysts, the conditions driving Singapore property prices and rents higher in recent years – notably brisk demand and tight supply – are about to be reversed.

While lower GDP will curtail demand on one side, supply will further bring it down as home units remain abundant with around 49,000 unsold units in the pipeline – about three years of supply at the current rate.

“In light of the current buying pattern, it is foreseeable that home prices will ease in 2012. We expect the prices of luxury/prime residential properties to fall by 10 per cent to15 per cent in 2012, whereas mass-market homes could fall by 5 per cent to10 per cent,” said Joseph Tan, executive director of residential at CBRE.

He added that landed home prices will likely see a smaller correction of less than 5 per cent since foreigners are generally not allowed to buy and supply is limited.

OCBC is even more foretelling, saying that the trend of dampened demand would stretch beyond 2013.

“Further downside risks beyond 2013 would come from a heavy completion schedule outpacing population growth. At that juncture, falling rentals and prices could further reduce primary demand, and also prompt unsterilized selling (adding to supply without a corresponding addition to demand) of investment residential units in the secondary market, further cannibalising primary market demand,” it said in a report.

From Residential to Industrial / Commercial

With a slew of cooling measures in the private residential segment, market watchers expect some diversion of investor interest from residential, to other real estate including strata commercial and industrial properties.
Ismail of PropNex said he expects transaction volume in the private property to dive 40 per cent in the core central region and 20 per cent in the mass market segment in 2012. Given this, he noted that investors’ demand may flow over to other market segments, such as commercial properties.

“With the recent Europe and United States economic worsening situation, more multinational companies are establishing their headquarters in Singapore taking advantage of the Asian growth. As such, more commercial units are in demand,” he said.

“In addition, with the recent ABSD cooling measure, investors are switching from residential to commercial property as investment alternatives. Thus, we forecast that the commercial property segment will do well in 2012,” the PropNex head added.

For the retail space, analysts see retail rent to stay flat in 2012, given the selective attitude among retailers to take up new space.

Letty Lee, director of retail services at CBRE, said that retailers’ cautious sentiment was expected to persist into the first quarter of next year. “Rents are expected to remain stable in the first three months of 2012 but may see some downward pressure later in the year,” she added.

Tough Office Market for 2012

Singapore’s office property market was relatively moderate in this year compared to 2010, weighed down by concerns over the anaemic growth in the United States and the eurozone debt crisis.

Analysts say vacancies for 2012 could rise to about 12 per cent from the current 8 per cent, as businesses begin feeling the impact of the economic slowdown.

Rental rate is also expected to soften in 2012. Preliminary report from Jones Lang LaSalle indicated that Singapore grade A offices hovered around S$786.0 per square metre per annum in 4Q2011.

“The standout trend across many key markets is a softening of demand from occupiers, as firms are applying caution in light of economic difficulties in the United States and the eurozone. We expect corporates in Asia Pacific to remain cautious for the remainder of this year and into next as they wait to see how the region will be impacted by what is happening elsewhere,” said Jeremy Sheldon, Managing Director, Markets Asia Pacific at Jones Lang LaSalle.