Two signals speak volumes about condo prices

Study by DTZ finds STI and developers' stock to be reliable guides to turning points

THE Straits Times Index and cumulative unsold inventory held by developers have been found to be reliable indicators preceding major turning points for private apartment and condo prices in Singapore, according to a study by DTZ.

The STI has been observed to lead the Urban Redevelopment Authority's non-landed private residential price index by one to four quarters since 1993.

For instance, the STI peaked in the third quarter of 2007 - nine months before the URA's index peaked in Q2 2008.

Similarly, the cumulative unsold inventory of non-landed private homes - with sales licences - held by developers has peaked or bottomed between two to 12 quarters ahead of turning points in the URA's index.

DTZ also devised an internal risk assessment model to estimate the probability of future major turning points in the Singapore residential market.

The STI has been observed to lead URA's non-landed private residential price index by one to four quarters since 1993.

It showed the risk of entering a correction phase has escalated considerably since Q2 2008.
The property consulting group said: 'Our assessment indicates that the probability of a full recovery by the end of 2009 - for the office and residential property markets in Hong Kong, China and Singapore - remains low.' DTZ added: 'Our internal model also indicates that the Singapore residential market has a higher chance of bottoming by mid-2010 (than by end-2009) and staging a gradual recovery from that point onwards.'

Both the Hong Kong and Singapore office markets have a lower probability of recovering by end-2010 than the residential markets in these two cities, as the office sector is more closely correlated with economic growth than the residential sector, DTZ reckons.

Asked whether the recent stockmarket rally will presage a recovery in home prices in Singapore, DTZ senior research director Chua Chor Hoon said: 'It's too early to say if the stockmarket rally will be sustained. A lot will hinge on when the economy recovers.'

Source: Business Times, 23 April 2009