Caution remains in Singapore property market

Caution remains in Singapore property market

SINGAPORE (AFP): Singapore's private residential property market is expected to be oversupplied in the next one to two years as the stock of completed units builds up and demand stays poor, according to Nomura Research Institute (NRI).

But the investment research house said the medium and long- term outlook for the property sector was positive.

Demand has eased since the government in May 1996 announced tax and credit curbs to cool down an overheated private property market.

NRI said in a report on the property market received at the weekend that some 11,400 new private housing units would be marketed on average per year in 1997-1999.

But the take-up of new units is expected to slide to 6,000- 7,000 from an average 9,500 between 1994 and 1996, it said.

"In view of this, a certain level of overhang is inevitable and this is likely to persist over the next one-to-two years, leading to lower occupancy and rental yields with the resultant pressure on pricing," NRI said.

Residential prices have declined 8.1 percent over the past three quarters, quarterly transaction volume has fallen 65 percent from its peak in the second quarter of 1996 and take-up rates of most new developments have fallen to 60 percent after three to six months of their launch.

Of the new housing stock due for completion this year, some 17.5 percent or 1,662 units remain unsold, NRI said.

But the number of residential launches is not expected to slacken, as developers push out more 99-year leasehold properties as a result of the government's land sale program in the past few years.

Demand for private housing has been running at about 9,500 units per annum for the past three years, a robust upturn from the 3,000-4,000 units sold in the late 1980s and early 1990s, the investment research house said.

It said the strong demand was due to rapid economic growth which fueled rising household incomes, as well as an increase in the number of settlers who took up permanent residency in the island.

Between 1990 and 1995, the number of permanent residents rose 65 percent from 109,000 to 181,700.

The report said Singapore's position as a regional hub, its stable political and investment climate and its firm currency were a strong attraction to property buyers in the region.

Nomura said the medium and long-term demand outlook for the property sector remained positive assuming steady economic growth of 6-7 percent for this city-state projected for the next few years.

Eighteen percent of the population, or 560,000 people, are in the 25-34 year age group which is the prime marriage and house- buying category and indicates underlying housing demand.

"Over the next five to 10 years, we expect this group to continue to be a major force in driving housing demand," NRI said.

Rising affluence and greater financial independence mean more young couples are staying on their own, which would also benefit the property sector, it said.

Nomura said its "affordability" studies suggested good underlying support in the "upgraders' market' of households moving from public-built flats to private property and private property-owners shifting to better homes.

"Overall, we do not expect the current adjustment in the residential market to lead to a severe bust," the report said.

Nomura maintained a neutral stance on property shares, which have fallen since surging in early February on unrealized hopes that the government may consider easing property curbs.

The Stock Exchange of Singapore (SES) property index surged to a peak of 811.6 in February. On Friday it closed at 710.24, retracing some 12.5 percent.