‘Moderate’ Housing Downturn Expected in Singapore

‘Moderate’ Housing Downturn Expected in Singapore

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 Public Housing in Singapore [Credits – tuis]

Singapore has undergone a huge cosmetic building change over the last couple of years. Since 2005 the building boom has been so active that property prices have risen by 70 percent. In the last year alone, office rent and residential rent also went up by 70 percent. This means Singapore sorts now the highest office rentals in all of Asia.

The construction boom comes with a hefty price though. Markets have slowed down in the last few months, in fact so much so that the overall increase of property prices only reflected a 0.17 percent profit margin in the 2nd quarter of 2008.

It is common knowledge and science that what goes up must come down.

A general property melt down seems to be imminent in Singapore right now. Developers are concerned as they report lower profits for the 2nd quarter and Singapore’s biggest private property group, City Developments has reported a 15 percent drop in earnings last week.

Others like Keppel Land and CapitaLand have even reported bigger losses (up to 43.5 percent). Even the FTSE share index has tumbled since its peak last year in October. It fell by 35.2 percent.

Not so long ago, Singapore’s property market was one of the weakest in the world. This resulted in a change of rules by the local government to allow for more new construction in the city in order to boost the market.

The new rule change “old for new” was introduced as a result and the building boom took off pretty soon after. Not only did this create an artificial shortage of rentals (nearly 90 percent of Singaporean’s live in State subsidized apartments), but it also created havoc when rentals went sky high.

Property speculation was well and truly ripe and people participated in the feeding frenzy, hoping to make a quick dollar or two.

It was all good and well until the global credit crunch made its way around the globe. This resulted into a slowing economy and rising prices, driving many people out of business and home.

Citigroup estimates luxury property prices could fall 20-30 per cent from their peak as speculators unload properties. Corrections in office rents are expected to lessen the financial load, but the damage has already been done.

Many businesses such as banks, insurance companies, etc, are moving their offices away from the expensive no go zone in the city to more affordable locations in order to keep their operations going.

Singapore research head for Jones Lang LaSalle, Chua Yang Liang, said the property consultancy, believes the city-state will probably avoid the property market collapse that occurred in 1997 with the Asian financial crisis. He expects Singapore will suffer a moderate downturn similar to that in 2003 when the outbreak of the Sars disease depressed demand. (source FT)