Higher home prices to stay, say some

July 12, 2010

Others say excessive liquidity exaggerates prices

PROPERTY prices of both private and Housing Board resale flats have,for the first time, surpassed previous peaks to reach new records.

Latest official estimates show private home prices rose 5.2 per centin the second quarter, after a 5.6 per cent jump in the first quarter.That means prices are now 1.5 per cent above the 1996 highs.

HDB resale flat prices rose 3.8 per cent in the second quarter,marking the eighth straight quarter that prices have broken recordssince 2008, when they surpassed the peak levels of 1996.

The rise in prices signals a strong demand for homes in the propertymarket. But with prices at record levels, can this demand be sustained?

For home-buyers and investors still on the lookout, the big questionis: To buy or not to buy? Does it make sense to buy now, given thatprices are at the highest levels?

Or is this a new era of property prices in Singapore?

Most industry analysts whom The Sunday Times spoke to seemed to think so.

The increase in levels of affluence in Singapore and in Asia due toa robust regional economy has helped to fuel prices, said C&HRealty managing director Albert Lu.

These prices move up and down in tandem with property cycles, buteach peak is higher than the previous peak and each bottom is higherthan the previous bottom, noted ERA Asia-Pacific associate directorEugene Lim.

‘So, if we were to plot a trend line across all the cycles, we cansee that property prices will be on an uptrend over time,’ he said.

Given Singapore’s economy is roaring at double-digit growth rates,property prices can be expected to continue their march upwards in theshort term, he added.

Even if private property buyers wait a year or two, there is noguarantee that prices will come down. And when they do, desirableproperties are often taken off the market. ‘So if you see something youlike, do your sums and if it is affordable for you, then go for it.’

Mr Lu agreed. Buyers who cannot wait might want to buy before pricesgo up further, although if the purchase can be put on hold, ‘it wouldbe best to catch the next down cycle’, he said.

This means the absolute loan amount a buyer takes will be lower and more affordable.

But prices are unlikely to return to the 2004 levels and the next down cycle could be as far as five years away, he said.

Chesterton Suntec International research and consultancy director Colin Tan has a contrarian’s view.

This new level of prices is ‘somewhat exaggerated by the excessive liquidity in all the markets today’, he said.

While the market has achieved new peaks, it has done so on the backof ‘abnormally low interest rates’ – three times less than normalinterest rates, he added.

The fundamental level of prices is likely much lower and close to pre-2007 price levels, he said.

‘So although we’re on a higher plane, current price levels willcorrect significantly to their true levels. The big question is when.’

So have investors missed the boat? ‘In a sense, they have. But it’sa boat lined with super glue – easy to jump into but difficult todisembark,’ cautioned Mr Tan.

The rental market has plateaued in the second quarter and fromanecdotal evidence by agents, investors are finding it difficult toachieve the rental returns they had hoped for, he added. As a generalrule, investors should aim for a 3 per cent to 4 per cent rental yieldper year, said Mr Lim.

Despite the high price levels, Associate Professor Sing Tien Foo ofthe National University of Singapore’s real estate department observedthat the current growth in prices is ‘still not as high compared withthe growth in prices in the previous peaks in the 1990s’.

However, ‘we have to be concerned about the high volatility createdby the active markets’ and cautious about the possibility of a propertybubble, especially if prices continue to increase at a pace that is notsustainable or reflective of the health of the economy, he added.

Source : Straits Times – 11 Jul 2010