WHEN National Development Minister Mah Bow Tan warned against property speculation recently, many – especially those in the real estate business – thought he was being a party pooper coming in to spoil the fun.
He had said: “Some of the practices and habits that you saw in the last property boom are beginning to come back, so I think we’ll have to be careful.”
The note of caution was appropriate and timely, given that we are still in the midst of a recession and headed for negative growth at year’s end, despite the strong comeback of the stock and property markets. And look at how crowds continue to throng showflats, sometimes days ahead of the launch.
Greed is back.
The Real Estate Developers Association of Singapore (Redas) was quick to downplay Mr Mah’s observations, saying: “In the current market, not all the property launches have been snapped up as reported in the media. Only a selected few launches have been highly successful for various reasons. This could also be a result of pent-up demand.”
But there are undoubtedly signs of some irrational exuberance creeping in, with prices of some properties, especially in the outlying areas, exceeding even the prices during the 2007 boom.
For instance, Optima at Tanah Merah, jointly developed by the Hong Leong Group and Japan’s Mitsui Fudosan, sold out its 297 units within three days of its launch at over $800 per square foot (psf) – a 19-per-cent premium to the nearby Casa Merah project launched during the 2007 boom.
Even more exuberance was displayed at the launch of Far East Organisation’s Centro Residences which, despite being a 99-year leasehold project of 329 units at Ang Moh Kio, saw prices of between $1,100 and $1,200 psf – almost what Sui Generis in the prime district of Balmoral Park went for.
While there are certainly genuine buyers, especially among Housing and Development Board upgraders and en bloc sale beneficiaries, there is little doubt that speculators are back with a vengeance. Just look at the classified advertisements for resale properties. Many of the flippers are said to be real estate agents.
For those so-called “specu-vestors” who put down money for properties that have yet to be completed, they are not going to get the benefits of rental income for some time to come. Which will be a problem if they run into cash flow problems.
Some of the blame for the current resurgence in the property market is being placed on the low deposit rates, meaning those with large cash hoards think they could be better off in the long run banking on capital gains from property investments than in putting their money in the bank.
Also fuelling the market are the low interest rates and easy terms that financial institutions are charging for housing loans. One local bank, for instance, is now offering fixed interest rates of 1.99 per cent per annum for three-year loans and 2.65 per cent per annum for five-year loans.
In the equity markets, the recent upturn in property prices has caused many analysts to take a bullish view on property stocks. However, an analyst from The Royal Bank of Scotland Asia Securities (Singapore) is taking a contrarian view and calling for a sell on most of them.
Not only does RBS find valuations of the property stocks rich, it also feels that sliding rental yields will drive down residential prices. It says that low interest rates are supporting unattractive rents and that the yields at well below 2 per cent per annum are “unsustainable”.
Investors, especially speculators, should therefore exercise more caution and allow some air to be let out of the growing bubble before it reaches bursting point. Will the Government introduce a capital gains tax to temper the exuberance? I don’t think so.
But, in the first place, why allow the Government to take any restrictive measures when self restraint on the part of all participants in the real estate business would be a better solution?
Source: Today, 17 Aug 2009