Saturday, October 29, 2011

Developers' property market confidence takes a hit in Q3

REAL estate players' sentiment about the property market weakened in the third quarter, with office and residential sectors expected to fare worse over the next six months.

According to the latest survey by the Real Estate Developers' Association of Singapore (Redas) and the National University of Singapore (NUS), the Current Sentiment Index - where respondents rate the overall Singapore real estate market conditions now vis-?? -vis six months ago - slipped to 3.6 in Q3 from 4.6 in the previous quarter.

The index ranges from 0 to 10, with a score below 5 indicating deteriorating market conditions and a score above 5 indicating improving market conditions.

The Future Sentiment Index - in which respondents rate overall property market conditions over the next six months - fell to 3.4 in Q3 from 4.4 in Q2.

As a result, the Composite Sentiment Index slipped to 3.5 in Q3, from 4.5 the previous quarter.

This is the third consecutive fall, from 5.7 in Q4 2010.

Specifically, the market outlook for the office sector looks bleak, recording the sharpest quarterly contraction.

Future net balance (difference between respondents who thought the office sector would fare better versus those who thought it would fare worse) fell from +42 per cent in Q2 to -57 per cent in Q3.

'The swift downgrade of office real estate sector performance shows how quickly the effects of a strong headwind buffeting the banking and financial services industry are being felt in terms of CBD office space demand,' said Steven Choo, chief executive of Redas.

Net balances of future performance for prime and suburban housing markets came in at -48 per cent and -46 per cent respectively for Q3, a contraction from +11 per cent and -37 per cent respectively.

Prime and suburban retail sectors saw future net balances of -28 per cent and -19 per cent respectively; the business park/ high-tech space and industrial/ logistics sectors saw future net balances of -38 per cent and -41 per cent respectively.

Results from the Redas-NUS Real Estate Sentiment Index survey also found that 55 per cent of developers expect more residential units to be launched over the next six months, compared to 70 per cent the last quarter.

A further 33 per cent anticipate launches to stay at the same level.

More than half (56 per cent) expect prices to remain flat, while 37 per cent expect a moderate decline, more than twice the 17 per cent reported the previous quarter.

'Most developers think that the latest revision in development charge (DC) rates was within market expectations for the landed residential and hotel sectors, but consider the respective hikes of up to 55 per cent, 39 per cent, and 32 per cent too high for the industrial, non-landed residential, and commercial sectors,' the survey noted.

Forty-five per cent of survey participants expect levels of interest in the Government Land Sales (GLS) programme to remain unchanged over the next six months, from 65 per cent the previous quarter. Forty-eight per cent expect less interest in GLS.

About a third of developers expect the same level of interest in en bloc land sales, down from 50 per cent previously, while 61 per cent anticipate less interest, up from 47 per cent.

Among the potential risk factors, slowdown in the global economy (96 per cent) was the most dominant concern, followed by domestic economy and jobs and land and property supply (45 per cent respectively), and rising construction costs (41 per cent).

Demographic changes such as fewer immigrants and lower household formation rates are expected to have the most impact on private residential demand in the long term.

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