February
22, 2008
Property sector braces for tougher times in 2008
Players feel squeeze from more credit woes and soaring construction
costs
THE
property market in Singapore is set to face a challenging year ahead
as it continues to take hits from the sub-prime crisis in the United
States and rising construction costs, industry body Real Estate Developers'
Association of Singapore (Redas) said.
Toss for luck: Enjoying 'yu sheng' at the celebration yesterday were
(from left) Mr Cheong, Ms Fu and Kwee Liong Keng, immediate-past president
of Redas
'Unfortunately, the sub-prime woe continues to hog the headlines,'
saidRedas president Simon Cheong, during Redas' annual Chinese New
Year celebration yesterday. 'Six months' ago, we were concerned with
the market exuberance. This coming six months, we are wondering when
the market will turn around.'
Construction cost
is also spiralling upwards at an unprecedented rate, Mr Cheong said.
The property market's
expected slowdown comes on the back of an exceptionally good 2007.
Last year, a record-breaking 14,800-plus residential units were sold,
the office occupancy rate hit 93 per cent and the hotel sector saw
a occupancy rate of 87 per cent.
But this year,
with more write-downs for sub-prime exposure expected from major financial
institutions - which could affect home prices and demand here - and
high construction costs affecting margins, developers are bracing
themselves for tougher times ahead.
'We are concerned
that construction costs have gone up so sharply and squeezed (developers')
profit margins so much that a small decline in the the final selling
price will affect developers severely,' said CB Richard Ellis' chairman
for Asia, Willy Shee. 'A small increase in construction cost and a
small decline in selling price will put developers in a very difficult
situation.'
Minister of State
for National Development Grace Fu, who was guest-of-honour at Redas'
event yesterday, similarly said that the property market's prospects
are dependent on how the sub-prime crisis is going to affect sentiment
in the region.
Mr Cheong believes
that the market will 'get some traction back' in the second half of
this year.
Interest rates
in Singapore are at a record low, which will encourage home ownership,
he said. And the influx of expatriates at all levels coming to Singapore
- on the back of an anticipated office supply of 15 million sq ft
over the next three to four years - will also provide a boost to the
property market, Mr Cheong said.
'Removal of estate
duty also helps,' said Chia Ngiang Hong, Redas' first vice-president
and group general manager of City Developments. 'The super-rich will
focus on Singapore again.'
Analysts, worried
about developers' prospects for this year, are already starting to
recommend that investors put their money into the more diversified
property companies and/or switch to real estate investment trusts
(Reits).
'In the current
volatile market environment, we recommend stocks of listed property
companies with strong balance sheets offering multiple-sector presence
and geographical diversification,' said UOB Kay Hian analyst Vikrant
Pandey. Citigroup analyst Wendy Koh said: 'In the light of the current
uncertainties, we retain our preference for Reits over the developers.'
(Source: The Business Times)
