Singapore Property Prices see Worst Decline in Ten Years

Singapore's official private home price index slid 5.7% in Q4 2008 over the preceding quarter. For full-year 2008, the index fell 4.3%, reversing a 31.2%  increase during 2007. This is the Singapore real estate market's worst performance  since Q4 1998 and property consultants are predicting a further decline of 10-20% in 2009, with luxury homes continuing to be the worst hit, as in 2008, this sector having seen the biggest increases over 2006/7..

'The bid-ask gap is very high; any buyer that comes in now wants to make sure he's buying at very attractive prices to cushion against future risk. As a result, most transacted prices are quite distressed,' said DTZ executive director Ong Choon FahBT understands buyers are looking at prices at least 20% below Q3 2008 levels before they are willing to commit.

URA's non-landed private home price index for Core Central Region (CCR) fell 6.3% quarter-on-quarter in Q4, or a full-year drop of 5.5%. CCR includes the prime districts, financial district and Sentosa Cove. In the Rest of Central Region, the price drop was 5.5% for Q4, and 4% for the full year. Outside Central Region, a proxy for suburban mass-market locations, suffered the smallest declines, of 4.7 % in Q4 and 1.6% for the  year.

The declines in URA's indices were far smaller than the price drops estimated by property consultants, probably due to lack of sales volumes, with sellers continuing to hold out for unrealistic prices. CB Richard Ellis said that last year, average prices of new luxury homes under construction fell 30 to 35% for prime districts 9 and 10, while those in Marina Bay and Sentosa Cove eased 10-13%.

URA's price indices are also weighted according to the moving average mix of transactions for the preceding 12 quarters, and this tends to make changes in the indices more muted during sharp market swings.

For this year, JP Morgan analyst Chris Gee said: 'The critical factor that will affect private home prices in 2009 - probably more importantly than the economy and jobs market - will be banks' financing of property. Banks seem happy to lend to the right type of buyers, but they're more conservative on valuations and tighter on loan-to-value.'

Smaller property developers have already started to cut prices. 'Among bigger developers, some are restructuring their portfolios and re-evaluating their risk positions,' DTZ's Mrs Ong noted.

A seasoned developer pointed to a diversity of strategies among developers, according to their financial strength, profit margin for each project and their view of when the recovery will take place. 'Some will cut and sell; some will package things that effectively give more discounts; some will lease instead of selling; some will just sit it out and wait for better times.

'Projects will be slowed down or delayed, stretching out the supply coming into the market, which in itself is a regulating mechanism,' he said.

In the public housing segment, the Housing & Development Board's (HDB) resale flat price index still inched up 1.5 per cent quarter-on-quarter in Q4 to scale a new peak. But this was slower than the 4.2% rise posted in Q3.

ERA Asia Pacific associate director Eugene Lim said: 'We've been seeing more transactions with decreasing cash-over-valuations (COVs). The days of transactions with above $50,000 COVs are over.'

He is predicting a sub-1% rise in the HDB resale flat price index for each of Q1 and Q2 this year. 'If the recovery takes longer, we may see the price index flatten in H2 2009 before decreasing, if the situation worsens.'

Knight Frank director Nicholas Mak predicted a 5 to 10% correction in HDB resale flat prices this year, as the weakening economic conditions filter into the HDB market.

ERA's Mr Lim noted that 'in uncertain times, home buyers go for the 'safer' option of HDB flats to ease their financial burden'. He estimated 30,000 to 31,000 HDB resale transactions were done in 2008 - surpassing the 29,436 in 2007.

As for the private housing sector, CBRE predicted developers may sell 5,000-6,000 units in 2009, as falling prices boost take-up. It put the figure for last year at 4,300 to 4,400 units - just 30% of 2007's record volume. Sales also slowed in the secondary market. CBRE estimated about 7,400 to 7,600 resale deals were done last year - against nearly 21,000 transactions in 2007. The 1,600 to 1,650 subsale deals it estimated for 2008 were also a far cry from the 2007's figure of 4,863.

URA press release