May 26, 2009
Gradual rise in home prices seen
Hong Leong boss says many buyers out there, but luxury sector still listless
By Joyce Teo
PRIVATE home prices in most sectors could start to rise gradually this year but high-end property will stay in the doldrums until later next year, according to tycoon Kwek Leng Beng.
Mr Kwek - executive chairman of the Hong Leong Group - said there are many cash-rich buyers waiting for the right time to buy.
'Every time the market turns, some people would get caught out,' he added.
The key question that many buyers are asking is: Has the market turned?
Urban Redevelopment Authority data shows that 1,207 new private homes were sold in April, making it the third consecutive month that sales have crossed the 1,000-unit mark.
It is a level reminiscent of the boom period and one that some analysts believe is unlikely to be sustained for long.
But Mr Kwek, who was speaking to The Straits Times on the sidelines of a recent hotel investment conference, feels that these levels of sales can be maintained 'if the world economy stabilises'.
'Confidence is the quick key to recovery. When you have confidence, you will invest,' he said.
Mr Kwek said developers are sometimes wrong but the key is to be more often right than wrong.
He also reiterated that property is an investment over the medium to long term, anywhere from three to 10 years.
Developers got the market message this year and have cut prices to meet buyers' expectations, following a stand-off that saw just 100-plus units sold in January.
'If you're listed, you'll have to sell something. Otherwise, every quarter, you have no sales,' said Mr Kwek.
Some developers have actually started to raise their asking prices slightly from their adjusted lows.
The strong sales so far this year have largely prompted two foreign investment houses to turn more positive on the residential market.
A recent UBS report points out that the sales momentum has been stronger than expected, with the possibility of higher prices in the second half of this year and next year.
It had already in a late April report called a 'buy' on the property sector, saying that demand from domestic upgraders - not foreign buying - will jump-start the recovery, as with previous recoveries in the 1990s.
Goldman Sachs has also projected a 5 per cent gain in Singapore private home prices next year, reversing its earlier tip of a 10 per cent fall.
'We think the alignment of developers' asking prices and buyer expectations would be key for generating sustainable demand,' said the UBS report.
Nevertheless, not all are optimistic about the market.
'This wave of purchases, once it's over, won't come back until the economy has recovered and embarked on its way up,' said a property fund manager who declined to be named.
The pent-up demand is coming mostly from owner-occupiers or small investors and these people usually cannot afford to buy more than one unit, he said.
'Foreigners are still leaving Singapore. When there are not enough real users for all the supply, prices will continue to fall.'
What is happening now in the real estate sector could be similar to the bear rally some analysts foresee for the stock market, he said, adding that the only good news is that mass-market prices are likely to hold at current levels.
Unlike high-end prices, which have fallen at least 35 per cent to 40 per cent from their all-time peak, the mass and mid-market sectors have had falls that are much less steep.
The price fall in high-end homes - which shot to more than $5,000 per sq ft during the boom from around $1,800 psf - is thus steeper, he said.
Average high-end prices may dip to around $2,300 psf, which is still higher than pre-boom levels.
Mr Kwek said the Hong Leong Group - which includes listed Hong Leong Finance, developer City Developments, Hong Leong Asia and London-listed Millennium & Copthorne Hotels - will hold off high-end home launches for now, preferring to start building first.
City Developments, the developer behind projects such as The Sail @ Marina Bay, has in its pipeline The Quayside Isle Collection in Sentosa Cove, a 99-year leasehold enclave where values have more or less collapsed.
High-end home prices were to a large extent boosted by foreign buying. 'Foreigners will slowly come back but not so soon,' said Mr Kwek.
The Indonesians, he said, are very slowly returning. Although the trend is barely discernible, it is a change from the previous downturn where they had all but disappeared.
Still, he cautioned against comparing prices with levels done a decade ago: 'Ten years ago and now, Singapore has changed. Fundamentals are good.'
The country will soon benefit from two integrated resorts, for instance.
'Worldwide, it is the worst downturn ever. But you see the amount of stimulus around. You can't see the effects immediately. It will take some time,' he said.