Home prices 'set for healthy gains'

But high-end market likely to do less well amid fears of oversupply: Report

PRICES of mass market homes, especially Housing Board flats, are set for healthy gains this year, according to a Citigroup report.

But it is far more pessimistic about the high-end market. Citi is bucking an upbeat trend among property consultants by expressing fears of an oversupply of upscale homes.

It said, for example, that one-third of prime District 9 units due for completion in the next 12 to 15 months remain unsold.

However, HDB resale prices, which provide a strong base for the mass private market, are likely to stay firm due largely to the generally low supply since 2003, it said. Citi expects both HDB resale prices and rents, as well as mass market private home prices, to rise 5 per cent to 10 per cent by the end of the year.

'With capital gains from existing Housing Board flats at a seven-year high, coupled with low mortgage rates, we believe new sales are likely to remain strong in the mass market,' it said.

Mass market private home prices should be capped at $900 to $1,000 per sq ft (psf), though there is a chance they may overshoot, it said.

Considering the high bids and breakeven costs for recent government sites, developers are likely to keep selling private homes at a minimum range of $850 to $1,100 psf and HDB executive condos at closer to $750 psf.

Citi noted that overall resale volume is a hefty 50 per cent off levels in the boom times of mid-2007. Prime apartments are in worse shape than other home types. Prices of high-end homes are still some 10 per cent to 16 per cent off their 2007 peaks, while mass market prices are now almost 10 per cent above that most recent pinnacle.

Citi believes high-end home prices will stay flat this year, unlike some property consultants who expect rises of 10 per cent to as much as 20 per cent this year, given that price levels are below the 2007 peak.

'This is the sector that attracts more foreign buyers who have fewer buying constraints,' said DTZ's head of South-east Asia research Chua Chor Hoon.

Colliers International director for research and advisory Tay Huey Ying said foreign buyers, including permanent residents, comprised over half of total buyers in the first five months of this year.

'Moving on, as the world economy recovers, there could be some diversion of investments from countries which have imposed cooling measures in their respective property markets,' she said.

But Citi said a much-awaited jump in high-end sales has yet to materialise despite the completion of both integrated resorts. The recent rise in rentals, driven by relatively low completion rates in the past two quarters, is not sustainable, it says.

High-end rentals are up an average of 10 per cent from their recent lows but are still some 20 per cent off their peaks. Mass market rentals, on the other hand, are up more than 13 per cent and are just 8 per cent off their last peaks in 2008.

Citi highlighted a jump in home completions, with about 10,000 units to be ready this year - more than anticipated.

In the next two years, more than 11,000 units will be completed a year. And the bulk - or about 80 per cent - of those to be completed over the next 12 to 15 months will be in the central region.

In District 9 alone, about 30 per cent of the new completions are unsold and in Sentosa, 75 per cent of the new units to be completed this year await buyers.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said in the short term, the high-end segment may not boom until the supply imbalance is gradually resolved.

Citi said: 'While we believe most of the listed developers under our coverage are unlikely to cut prices to move their inventory, other developers may be more willing to do so.'

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THINKING AHEAD

'While we believe most of the listed developers under our coverage are unlikely to cut prices to move their inventory, other developers may be more willing to do so.'

Citigroup on the oversupply in the high-end property sector

Source: Straits Times, 29 Jun 2010