Is property becoming king again?

EVERYBODY wants to believe that the light at the end of the tunnel of the current economic crisis is now discernible. And why not? After almost two years of persistently gloomy news, it is certainly time for a change, even if most economic indicators say otherwise.

One of the places in which this optimism is reflected is the property market. Earlier this month, the Urban Redevelopment Authority released data revealing that developer sales in April hit over 1,200 transactions, following two consecutive months of exuberant sales. Indeed, the developer sales for the January-April period with 3,867 units sold now represents almost 90 per cent of all developer sales in 2008 (4,382 units). And unlike earlier months, the transactions in April were done across various market segments, which could suggest a broad base recovery.

Yet, the last time we checked, the Singapore government had revised its GDP forecast downward, unemployment had risen, and exports had fallen. And while there is persistent talk of 'green shoots' of recovery, even if one buys into the rhetoric, what is curious is that the property market appears to have jumped the gun. Yes, the stock market has recovered somewhat of late, but at least for the last week, property stocks have outperformed the overall market.

So is it blind optimism that is driving the property market? Some believe that these buyers are just following the herd. Property prices of new homes have begun to moderate downwards and while new homes are still by no means cheap, some argue that buyers are afraid of 'missing the boat'.

But can this really be a concern? After all, as has been well reported, there is expected to be a glut of new housing supply next year.

One reason could be that investors are buying into forecasts, now coming in thick and fast, of an economic recovery next year. Therefore they don't want to lose out on the discounts being offered now, even at the risk of having to hold on to their new properties for a longer time in the future before the recovery really gets underway and the market turns decisively.

Another plausible reason for the surge in sales could be that fixed deposit rates have fallen to near five-year lows, inducing many to move their savings into property instead - which implies that as the deflationary environment abates, property is replacing cash as king.

Whatever the reason, the ongoing surge in property transactions certainly warrants some study. Singapore is unique in many ways, but if the property market here is an anomaly, it would be useful to know why - if only to help the market function more efficiently and help those who really need a home to get a clear picture of where property prices are headed.

Source: Business Times, 29 May 2009