Home vacancy rates 'may reach new highs'

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Home vacancy rates 'may reach new highs'

Redas chief warns of falling prices with new properties set to hit market

Published on Feb 28, 2015 1:11 AM

By Rennie Whang


RESIDENTIAL vacancy rates here could surge to record highs, given the number of new properties set to hit the market, a real estate industry leader has warned.

The prediction came yesterday from Mr Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas), in some of the strongest comments made by developers recently.

"This will cause a further slip in home rentals and a downward spiralling of property prices," he warned in a speech at the Redas Spring Festival Lunch, where Ms Grace Fu, Minister in the Prime Minister's Office, was the guest of honour.

The vacancy rate at the end of last year was nearly 8 per cent, or 24,000 vacant units - 54 per cent more than the vacant stock levels in 1998, when the vacancy rate last peaked.

"As we have seen in the past, we can go into an oversupply situation very quickly. As we move on, and we have a larger base of private properties... the boom and the bust, if anything, is going to be more damaging," Mr Tan said.

More than 75,000 new private residential homes are expected to be completed from now to 2019.

Mr Tan's comments came after National Development Minister Khaw Boon Wan said last week that the residential market had achieved "a better balance between sellers and buyers".

Mr Tan acknowledged that the Government's cooling measures had achieved their intended goal of stabilising property prices.

Prices have fallen 5 per cent from the last peak in 2013, according to the Urban Redevelopment Authority's Property Price Index, but actual prices in the luxury homes segment have dropped by at least 20 per cent, he added.

"The imposition of the additional buyer's stamp duty on this segment runs counter to the Government's efforts to encourage foreign investment flows into the country," Mr Tan said.

He called for a "public-private-sector collaborative effort in understanding" and managing the real estate market. "The Government, working on its own, may not be able to manage precisely the rate of decline in prices in order to arrive at a level that is deemed to be desirable for a stable property market," he said.

"They may have in mind a certain target but the measures, if not moderated, could lead to an unintended downward spiralling of prices by much more. It is not in our national interests to see this happen."

On whether prices will fall sharply, Knight Frank Group managing director Danny Yeo agreed that prices are expected to weaken. But "at which point will the scale tilt and prices fall much faster? Six months, nine months, or a year? That's a question everyone is concerned about".

Tuan Sing group chief financial officer Chong Chou Yuen noted as well that luxury home prices have fallen by more than 20 per cent in Sentosa, but some analysts have said the luxury property market, while weak, is not representative of the entire market.

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Redas warns of downward price spiral

Association chief says oversupply could push vacancy to new high; but not all developers share similar pessimism

By Lynette Khoo

[email protected]@LynetteKhooBT

28 Feb


COOLING measures by the government, if left unchecked, could lead to an unintended downward spiralling of property prices, warned Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas).

Already, private housing completions from the last few years of ramp-up in government land sales are presenting "a worrying oversupply scenario" that could bring vacancy rate to a new high, he said.

However, some developers BT spoke to feel the dire prognosis is restricted to a small luxury segment and the overall market is not at high risk of a downward price spiral.

Just three weeks into his newly appointed role at Redas, the executive director of property sales at Far East Organization painted a bleak picture of the Singapore property market at the Redas Spring Festival luncheon on Friday.

"Analysts estimate that over 75,000 new private residential units will be completed from 2015 to 2019. This looming supply is likely to bring home vacancy rate to a new record high," Mr Tan said. "This will cause a further slip in home rentals and downward spiralling of property prices. For homeowners, their investments will be severely impacted... Some may be forced to sell their properties."

The vacancy rate of private housing at end-2014 was close to 8 per cent, representing a vacant stock of 24,000 units - 54 per cent more than the vacant stock in 1998 when vacancy rate peaked at 9 per cent. But the total housing stock has grown 80 per cent since 1998 to almost 309,000 units.

"As we move on, and we have a larger base of private properties - residential units, office and industrial stock, the boom and the bust, if anything, is going to be more damaging, Mr Tan said.

He pointed out that the government, on its own, may not be able to manage precisely the rate of decline in prices to reach a level that is deemed desirable for a stable property market.

On that note, he hopes that the government's macro and prudential measures will be calibrated over time, through a public-private sector collaboration in understanding the situation.

A case in point, Mr Tan said, is how prices in the luxury homes segment dived at least 20 per cent from the 2013 peak but the URA Private Residential Price Index indicated only a 5 per cent drop in private residential prices from the 2013 peak.

"They look at a wider range of prices while when we say high-end, we refer to the above S$2,800 per square foot range," he clarified with BT, adding that Redas is looking to supplement such sub-market data to URA.

Though the high-end segment is not one that the government is looking to safeguard given that not many Singaporeans buy into this segment, the imposition of the additional buyer's stamp duty (ABSD) has alienated "some high net-worth foreign investors who create jobs for Singaporeans", Mr Tan pointed out.

Developers that BT spoke to noted that the 20 per cent drop in luxury home prices cited by Mr Tan refers to a specific market segment while the overall market has a lower risk of that downward price spiral. Lim Ee Seng, chief executive of Frasers Centrepoint Ltd, said that amid concerns of falling prices and dwindling demand, well-located projects such as those in integrated commercial and transport hubs should continue to do well. "Sales have almost ground to a halt in general. But the government has enough control in terms of TDSR (total debt servicing ratio) and the seller's stamp duty to control financial prudence and curb speculation, so if it can consider easing some of the buyers' stamp duty, that will help facilitate some purchasing activities from genuine buyers," Mr Lim said.

Tan Tee Khoon, executive director of residential services at Knight Frank, agreed that while overall private home prices have come down by 5 per cent, some segments and groups of people are harder hit. "There are those who cannot buy because prices in the districts they are interested in may still be resilient and they are just waiting. There are yet others who wish to buy a second property but could be hit by a 10 per cent ABSD. There are those whose properties' capital values are waning," he said.

"As far as we are concerned, the rice bowls of property salespersons are severely impacted," he said. "With a 51 per cent drop in new home sales last year, the prospect of higher vacancy rates and impending rise of interest rates, we can expect tougher days ahead."

Grace Fu, Minister in the Prime Minister's Office, graced the Redas lunch on Friday but cast the spotlight on other topics affecting developers - that of driving productivity in the construction sector, green buildings and public hygiene in commercial buildings. She disclosed that the Building and Construction Authority is exploring more incentives to help developers overcome the initial inertia and cost premium of adopting game-changing productive technologies. Details will be out when the second Construction Productivity Roadmap is launched later this year.