Monday, August 17, 2009

On the road to recovery

How would you explain the recent pick-up in the property market despite a weak economy? Is it likely to be sustained? Is there any cause for concern at this stage?

Pauline Goh Managing Director CB Richard Ellis Singapore
DESPITE an economy that's still in negative territory, there has been significant demand for private residential housing. New home sales totalled 7,250 in the first half of 2009 - up 70.0 per cent from 4,264 sold in the whole of 2008.

Several factors combined to bring about this pick-up. Potential home-buyers who had substantial savings when the economy was booming from 2005-07 were priced out of the private residential market as prices rose too quickly. Now that prices have corrected - some 25 per cent from the peak in Q2 2008 - buyers are taking advantage of the opportunity to purchase. In addition, investors have switched their focus to property after losing faith in structured products during the debacle that affected big-name financial institutions last year.

Kelvin Lum, Executive Director, L C Development
GLOBAL market conditions remain challenging due to weak economic fundamentals. But there has been positive data signalling some form of recovery in Singapore. Positive signs are also showing up in the United States, with home prices there rising in May for the first time in three years. The fact of the matter is, economies are faring better than they were a year back.

Recent positive indicators have likely fuelled the rallies in the equity markets and lifted investor confidence. With borrowing costs and deposit rates at all-time lows, investors are looking to re-invest in the real estate market to obtain a better yield and to hedge against inflation.

The pick-up is evident in the mass to mid-market residential sectors. The commercial and luxury residential sectors remain relatively subdued. In a market such as this, positive sentiment makes all the difference. The sustainability of the pick-up, therefore, depends on continued investor confidence which, in turn, will be driven by economic news out of the US and major regional markets such as China.

Barring unforeseen circumstances, players will likely support the equity markets, which in turn will have an impact on the sustainability of the property market. Although Singapore's economic well-being depends on the economies of its major trading partners, it is unlikely that a correction - if any - will be as acute as that seen in 2008.

Gary Harvey, CEO, iPac Wealth Management Asia
LIKE most investment markets, in the latter half of 2008, the Singapore residential property market may have overshot on the downside. Demand almost dried up as a result of the extremely poor economic outlook. Moving through 2009, Singapore has not truly seen the forced sales that many parts of the world have experienced. Nor did the forecast number of foreigners leaving materialise. These factors, combined with low interest rates and the willingness of banks to still lend, have led to the property market returning to a more realistic level.

For the rally to be sustained, investors should now start focusing on fundamentals. Vacancy rates, rental yields and an increase in foreign investment will need to improve for any recovery to be sustained. I believe speculators should be cautious as we are in a market that depends on global trade. Any sign that recovery is not gaining momentum would be a cause for concern.

Darren Thomson, President and Chief Executive, Manulife (Singapore)
Chairman, Manulife Asset Management (Singapore)
WE are living in unusual times and should expect to see movements in markets that may make us feel uncomfortable. However, my experience of the Singapore property market is that it is somewhat erratic - which means that the unusual is usual.

Our market has a number of variables that others do not have to contend with. In particular, the proportion of foreign buyers and speculators may be disproportionate compared with other markets. And, of course, we have insufficient land.

Property is a popular asset class, and the imbalance of investor money - institutional and private - vis-a-vis the domestic home buyer market may be the key variable to analyse.

I have seen violent swings in the past four to five years in both directions. In particular, the speed of price movements can be quite remarkable. I have, therefore, conditioned myself to expect the unexpected.

The paradox is that I would become concerned if the property market became stable or less volatile. But that would be unusual, which is, er, usual?

Krishna Ramachandra Managing Director, Arfat Selvam Alliance
THE recent accelerated pick-up in prices has boosted hopes that the property market may be over the worst. As prices had fallen rapidly, market activity picked up as more bargain-hunters - confident that prices did not have much further to fall - joined the fray. The frenzy simply perpetuated itself. And as lenders loosened their lending criteria, prices started rising further.

These factors, combined with pent-up demand in the past nine months, defines the irrational way in which the property market has risen so quickly. I believe the market is likely to sustain itself and perhaps ride on the performance of the stock market.

In addition, there will be pockets of property - those directly affected by the opening of the integrated resorts, for instance - that will keep on rising after prices generally stabilise.

I think government intervention at this point would be premature. The banks are still relatively tight with credit, and those who are coming out to play - institutions and investors - do not need interventionist measures to rein them in. There is no sizeable bubble to be concerned about right now. On the contrary, the rising property market engenders positivism, which even if slightly misguided, is to be encouraged.

Dora Hoan, Group CEO, Best World International
SEVERAL factors have triggered the current price boom. Low interest rates due to the weak global economy makes investing in properties quite tempting. Investors have also become extra-cautious about complex financial products. For this reason, many have bet on Singapore as the safest place to park their money by investing in property here.

To add to that, there are signs of economic recovery, the stockmarket rally, and the pending completion of major tourism infrastructure projects. Population increase is also a significant factor in a nation with limited land, where the aspiration of every family is home ownership.

However, we should be on the lookout for speculative buying. We do not have to go far back to know what happens when greed gets the upper hand. In view of this, the responsibility of market players is to steer clear of unwarranted speculation that could send prices soaring out of control. That would hurt the economy at a time when it is barely recovering from a slump.

Glenndle Sim, Chief Executive Officer, Mencast Holdings
THE recent pick-up in the property market can be attributed largely to two pools of buyers - foreigners who are attracted to Singapore and plan to set up homes here, and Singaporeans who are picking up properties to buffer against inflation, or who have liquidity after withdrawing from equities when the stock market was down last year.

Foreign buyers are drawn to Singapore not only because of its political and social stability but also the ease of settling down in a comfortable and cosmopolitan city with many facilities. The open economy makes it attractive for people to start businesses and to work here. And the multicultural environment of different races, religions and nationalities makes it easier for foreigners to be assimilated.

Locals and foreigners will likely be willing to pay a premium for properties here as long as Singapore continues to be an attractive place to live and work. Going forward, prices may stabilise, with some dips. But they are unlikely to crash.

Liu Chunlin, CEO, K&C Protective Technologies
THE property market seems to have moved in tandem with the stock market and commodity prices. The same question of whether it is sustainable applies to the stock market and the property market. I believe recent market movements may be running ahead of the economic upturn.

The little bits of good economic news from the stimulus efforts here and abroad, plus recent commodity price increases, have fanned this sentiment. From what I hear, there have also been some genuine property buyers moving in. Having waited, they are now afraid of higher prices.

While a bit of such sentiment is good to stoke optimism, I believe the focus in the coming months should be on re-structuring, consolidation and regaining productivity. After all, jobs are still being lost and companies are still digesting the structural changes and trying to regain output.

My concern is that a premature pick-up in the property market, especially if it becomes heady, will add to inflationary pressures, force a serious correction later on and divert the focus from productivity efforts.

Cathlyn Leyau, Managing Director, FIL Skin, Body & Spa Intelligence
OVER-SUPPLY and recession are causing developers to sell units at lower prices to attract buyers, which has catalysed the recent hype in the property market. The plain fact is the property market may not recover before the stock market does. It has long been noted that a recovery in the stock market precedes one in the property market, and there is always a lead-lag effect. Buyers snapping up homes in recent weeks may be jumping into the market way before it has hit rock bottom. The property market remains largely weak, even though recent sales have sparked a glimmer of hope. The big concern is that many people may jump the gun and mistake the pick-up in property market as the first sign of recovery. There are lots of opportunities to do things with your money, but the big danger is that you might end up locked up for a long time. The key for investors is patience. Do not be misled by false dawns.

Choe Peng Sum, CEO, Frasers Hospitality
THERE has been a drop in real estate prices since the economic downturn in October last year. Hence, consumers who are on the hunt could be afraid to 'miss the boat' if they do not capitalise on some of the 'good buys' currently on offer. Unlike the past few years, however, I think that this time, consumers will tread with greater caution, and will not jump on the bandwagon. Further, the situation will be closely monitored and necessary action could be taken if the market gets too hot too fast.

Wee Piew, CEO, HG Metal Manufacturing
BEFORE the property bubble burst last year, the market was going from strength to strength fuelled by easy money and confidence that Singapore was re-inventing itself. Then came Bear Sterns, AIG and Lehman Brothers, which sent the property market, not just in Singapore but almost everywhere else, into a steep decline.

If there had not been a global meltdown last year, would Singapore's property market have continued its run from 2007? I believe the answer is yes, because in the medium to longer term, Singapore's re-invention story is still intact. I, therefore, believe the current pick-up in property prices is a continuation of the run from 2007. Yes, confidence has been badly bruised, but it is beginning to get back on its feet.

What is different now from 2007 is that while there has been a speculative element of late, buyers and investors remain cautious towards all investments - not just property - after the collapse of 2008. If you believe in the Singapore re-invention story, the property market will remain healthy, though hopefully at a less fanatic pace compared with 2007.

Another positive for the property market boils down to Economics 101. When you print money, inflation goes up and real assets go up. This is fundamental. So what have all the governments in the world been doing? Printing money. And not just printing money, but an unprecedented amount of it. A corollary is low interest rates, which I believe governments are likely to maintain for a while as economic recovery at this stage is still fragile.

All this means that property, like all other real assets, is likely to move up in price. We are already seeing this in many parts of Asia besides Singapore - for example, Hong Kong and China.

Tan Tiong Cheng, Chairman, Knight Frank
THERE is a general feeling that we have seen the worst in the global, regional and local economies. This is reflected in the stockmarket rallies since March. The local residential property market, being sentiment driven, has followed suit. Buyers, local and foreign, sense that we are poised for price recovery, and developers are capitalising on the opportunity to embark on new launches and clear previously launched projects. This explains the market activity in the past five months.

Many will recall that sales fell off a cliff after the Lehman collapse. Today, that fear has largely dissipated. As long as the economic numbers show an improving situation, coupled with greater job opportunities and a low interest rate environment, a sustained recovery can be expected. The danger is over-zealous buying leading to over-zealous pricing that chokes the market.

David Leong, Managing Director, PeopleWorldwide Consulting
SINGAPORE'S liquidity-driven economy has propped up not only the Straits Times Index but all asset classes. The 52-week range is 1,455.47-2,843.57 - a doubling. The Singapore dollar remains strong and stable, and functions as a channel for financial intermediation from investors in Asia, Europe and the Middle East. Such a channel will give rise to volatile cross-border capital flows that typically are driven by factors or reasons unrelated to local economic fundamentals.

The sharp spike in demand for property can be mostly attributed to such fund flows from overseas. It is patently clear that the domestic economic weakness cannot spur such frivolous consumption.

Foreign capital inflows can be unpredictable and volatile. The property pick-up is unlikely to be sustainable if this is the major force supporting it.

Domestically, we are seeing more local investors taking strong positions in the hope of economic recovery in 2010. With a high take-up rate at new property launches, there is clearly a certain momentum. Snapping up risky assets is also fuelled by attractive interest rates.

The economic tide seems to have turned. It is not about pessimism in the air, but how strongly the tide will turn to lift everyone up for fresher air.

Roland Mathys, CEO, Jurong Cement
I THINK there are two fundamental forces at play:

People in Singapore have a lot of wealth they need to put at work and, in the long run, property is a safe bet in a country with limited land and a formal policy to increase population to six million;

People realise that the money-printing exercise happening all over the world will ultimately result in high inflation, if not hyper-inflation, and the only way to protect your wealth is to invest in real assets.

Lim Soon Hock, Managing Director, Plan-B ICAG
I DO not believe the recent pick-up in the property market can be sustained. The recovery is more likely to be a 'W' shape, with a broad base and low vertex.

The recent rally is due to buyers who were bottom fishing, saw signs of pick-up, then panicked and made a bull run. These are also likely to be purchasers - locals and foreigners - who have access to loans or have cash on stand-by, and are taking advantage of more favourable prices.

I do not believe there are too many such people. Therefore, I do not believe the recovery can be sustained. My pessimism is largely due to the continuing global malaise. The world financial system remains unhealthy; global unemployment is on the rise, especially for PMETs; demand and consumption of goods and services is still weak and the global property market has yet to turn the corner. If there is one barometer of imminent economic recovery, it is the latter - the same factor that triggered the sub-prime crisis - that must pick up. Until then, in such an adverse environment, it is difficult to sustain a market rally, given that property purchases are big-ticket items.

Speculation thrives in such an environment, generally driven by the herd mentality. It needs to be kept in check to avoid a bubble that is completely out of step with the depressed state of the economy. In this regard, it is heartening to note that the government has sounded the alarm bells.

Pramod Ratwani, President and Executive Chairman, Consilium Software
THE underlying economic reasons which caused the downfall of property prices remain. The recent increase is mainly due to speculation plus some genuine demand from first-time buyers who were waiting for property to cool. There is risk for people looking for investment gains if prices were to pull back due to lack of demand and over-supply of completed housing that will start hitting the market in the next few months. This is likely going to be a 'W'-shaped recovery and people need to be cautious in spending their hard-earned money.

Loi Pek Yen, Group CEO, CWT
GREED and fear drive prices. Barely half a year ago, gloom dominated and fear led to panic selling by some. Now, with low housing loan rates, fear of perceived inflation and fear of missing the boat, prices are being chased up. At the same time, greed has resulted in speculators loading up on property to cash in on the ascent. Property prices are rising in other part of Asia too - not just in Singapore. The pick-up is likely to be sustained so long as lending rates remain low.

Tan Ka Huat, Managing Director, CEI Contract Manufacturing
THE property pick-up seems to be the result of convergence of several factors:

Direct correlation with the STI and other Asian stockmarket indices.

Recent positive news on economic recovery.

The relatively high savings and cash holdings of Singapore households.

Expectations, coupled with bandwagon syndrome.

David Low, CEO, Futuristic Store Fixtures
IN comparison to the 2007 boom when saw prestige homes take centrestage, the recent spate of property sales is very much mass-market driven. The rush has been mainly triggered by low interest rates coupled with pent-up demand from those who did not capitalise on the last boom.

The pick-up will be sustained as long as long-term investment is pursued rather than speculation. Speculation is like a party - it can lead to a vicious hangover. And we are talking about mass-market buyers, so the negative effect can be alarming. So as long as prices do not escalate overnight, there should be no cause for concern.

Thomas Preben Hansen, CEO, Rickers Maritime
LOWER property prices, excess liquidity and low interest rates are likely to have been key drivers in the recent property rebound. With the benefit of built-in inflation protection, the property investment proposition could make good sense in today's uncertain times.

However, investors and banks should be careful not to commit to excessive leveraging, as near-term returns could be volatile. A backlog of launches equals a substantial amount of supply in the pipeline, which could add to pressure on rents. A combination of falling rents and higher interest rates could rapidly erode yields in the near term.

With Asia set to lead the world out of recession, and talk of an 'Asian century', we can expect to see an acceleration in foreign investment and in the number of people seeking a career in Asia, all of which, over medium to long term, should stimulate property prices in Singapore.

Stefanie Yuen Thio, Head, Corporate, TSMP Law Corporation
THE reason for the rally can be summed up in something a Generation Y-er said: 'If this is the world's worst recession ever, it ain't so bad.'

I don't think people have truly felt the harsh reality of the recession in Asia. Governments have been incredibly adept at going into damage control, pumping billions into the system, shoring up lending and helping businesses stave off retrenchment. These were necessary measures from an economic and confidence viewpoint. But they had the side-effect of insulating most of the population from the naked reality of the economic crisis we're going through.

Talk to people on the street and you may find, as I have, that there are some who have not been able to find a job for a year, and others - mostly under 30 - whose spending patterns have hardly changed since the boom days of 2007.

Because many have been sheltered from the real effects of the global financial crisis, I think we may be living in what is another, potentially much larger, bubble. And while we had quick-acting governments to come charging in to save us from the last one, who can we look to for salvation when the governments' rescue plans run out of ammunition?

I think it's crucial that we work out what went wrong and put in place measures to try to prevent similar mistakes. This is the responsibility not just of national regulators but also global banks and professionals who form the backbone of so many corporate structures. It's time we brought corporate social responsibility out of the charitable arena and into the boardroom.

Deb Dutta, Vice-President, Asia-Pacific, Brocade
THERE is a general perception that the real estate market has bottomed out. As a result, people are rushing in, which is boosting property prices. I don't want to rain on the parade but I do not quite agree with this optimism, despite Singapore's limited land supply.

Singapore's reputation and the government's efforts to make the island a regional educational hub attract foreign students, which supports the rental market somewhat. At the same time, we have low interest rates, which is motivating upgraders to buy property, putting a somewhat positive spin on the market.

None of the factors that have driven the global slowdown have changed markedly - anywhere in the world. And Singapore does not have the critical mass to set its own trend.

I am starting to see promising signs, but we are definitely not out of the woods.

Reto Isenring, Managing Director, VP Bank (Singapore)
THE current popularity of property can be attributed to its tangible nature. Many investors were burned or turned cautious after the Lehman collapse. The resulting lack of confidence in financial regulations has dented the appeal of mutual and hedge funds, currency options and commodities, etc. So a lot of savings/assets have been sitting idle in almost-zero yielding accounts for the past year. Property prices have also fallen reasonably in the last year.

All of this has created the perfect backdrop for a surge of investment in property, driving prices up more than 20 per cent in the past three to six months alone. It also appears that many property purchases are for investment rather than owner occupancy.

With the amount of liquidity available, prices can be sustained in the short term. But unless rental demand and yield remain strong, the longer-term outlook for property can be bleak.

Teng Yeow Heng Michael, Managing Director, Corporate Turnaround Centre
THE recent pick-up in the property market is due to feel-good sentiment from the rise of the equity market. Funds are flowing into Asia again owing to fiscal stimulus injected by the various central banks a few months ago. Also, residents in Singapore who sold their homes previously in en bloc deals are looking for property to buy to occupy. Others are finding that the banks are offering very low interest rates on fixed deposits, and have decided it is better to park their money in property. Some are anticipating hyper-inflation in the years to come and are investing in property to hedge against this. Others are rushing into the fray so as not to miss the boat.

I do not think that this is a sustainable trend. The world is still in recession, though signs are indicating the worst may be over. It will take several years for things to get back to normal. Companies will continue to downsize even when the economy recovers, and when people lose their jobs they will have less appetite to invest in property.

Source: Business Times, 17 Aug 2009

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