Thursday, April 23, 2009

Full recovery remains low

Home market has just a 5.8% probability of recovering by end-Dec

THERE exist a few parallel leading indicators in the Singapore residential market. Both the stock index and level of unsold inventory are found to precede all major turning points in residential prices.

In a report we published in December last year, we highlighted that the stock index is a key leading indicator of the Hong Kong and Singapore office market rental trends. It was also observed that changes in office vacancy direction will precede all major turning points in these two markets.

An internal model was developed to leverage on these leading indicators to assess the probabilities of future turning points.

Similar to the office market, the Straits Times Index (STI) is also a key leading indicator of the Urban Redevelopment Authority’s (URA) Non-landed Residential Price Index trend.

The STI was observed to lead the URA Non-landed Residential Price Index by one to four quarters since 1993. Similarly, the level of cumulative unsold inventory (with sales licences) held by developers is a reliable indicator of critical market turning points.

An internal risk assessment model based on the Markov process concept was developed to estimate the probability of future major turning points in the Singapore residentialmarket. Higher probabilities will imply higher risks of entering a correction phase.

This risk has escalated considerably since the second quarter of last year.

To enhance our internal risk assessment capability, DTZ Asia Forecasting had further extended our early warning system to include a few key cities. Our assessment indicates that the probability of a full recovery by end of this year remains low.

Our internal model also indicates that the Singapore residential market has a higher chance of bottoming by the middle of next year and stage a gradual recovery from there onwards.

Both the Hong Kong and Singapore office markets had a lower probability of recovering by the end of next year compared with the residential markets.

This is an extract from a DTZResearch report released yesterday.

Source: Today, 23 April 2009

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