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Why Singapore property sales jump isn’t a recovery

Munshi Ahmed | Bloomberg | Getty Images

Singapore's new home sales jumped in February, but the gains likely don't signal an end of the sector's downtrend.

February's 28 percent sales jump from a month earlier was largely due to developers launching only two projects in January, with one of those getting a "lukewarm" reception, said Alan Cheong, senior director for Singapore at Savills.

Developers launched around 671 units in February and 549 in January, and sold 724 units in February, up from 565 sold in January and 259 in December.

(Read more: Can Singapore safely deflate its property market?)

"In February, there were two midsized projects and they were priced competitively," he said. "If nothing gets launched (in March), then we may see sales fall back."

Property prices and sales in the city-state have been closely watched for cues on whether the government can safely guide the market to a soft landing amid tightening global liquidity. Some of Singapore's borrowers may become stretched if interest rates rise and there are concerns they could dump their properties into an already slowing market if their payments rise.

Prices have surged over 60 percent since 2009, propelled by rock-bottom global interest rates and quantitative easing in developed economies, even as Singapore's government has enacted a series of cooling measures to prevent a bubble from forming.

Developers have been holding back launches since the government introduced the Total Debt Servicing Ratio, or TDSR, to cool the market, Cheong noted. The measure aimed to ensure that buyers' monthly payments do not exceed 60 percent of their income, so they wouldn't be caught out by a spike in interest rates. Most mortgages in Singapore have adjustable, rather than fixed, rates.

(Read more: Singapore and Hong Kong housing faces 'double whammy')

"Once you have the TDSR, developers have to rework where to put their price points. They need evidence from the market on where the sweet spot is. No longer can you price at a premium," he said.

"They have to price at previous projects' prices in the vicinity, provided the previous project was well received," he said. "But sooner or later, they have to sell."

There's a limit to how long developers can delay launching their units – developers have five years to finish building a project and then two more years to sell all the units, noted Tricia Song, an analyst at Barclays, in a note.

(Read more: Do rising Singapore bankruptcies signal trouble ahead?)

Overall, developers in the luxury segment have cut prices by as much as 18 percent since the end of last year, with the broader sector likely to see price corrections of up to 20 percent by 2015, she said.

She expects sales of only around 8,000 units this year if the current run-rate continues, around half of 2013's sales. At the same time, she estimates over 40,000 unit completions through the end of 2015, including new public housing units.

(Read more: Challenges ahead for Singapore property market: CapitaLand CEO)

Amid increasing supply and tighter lending, buyers are getting fussier about pricing, analysts said.

In a note titled, "Dear agent, do you have anything below S$1.5 million?," CIMB noted that units priced above the 1.1 million-1.5 million Singapore dollar level ($870,000 to $1.19 million) aren't seeing much interest, with agents saying resale volumes are down as much as 40 percent over the past three months. It noted February's new launches were selling around 1,050 Singapore dollars per square foot (psf), with one to two bedroom units of around 500-700 square feet seeing the most interest.

In the secondary market, "when it comes to larger units in prime districts, volume becomes very thin," CIMB said. It noted Goodwood Residences, a newly completed development with a prime location, is still more than 40 percent unsold, with its pricing now around 2,400-2,600 Singapore dollars ($1,897-$2,055) psf, or 13-20 percent below its 2008 launch price.

(Read more: Singapore to tax sin instead of the wealthy)

One high-end developer, Wheelock Properties, has already taken a 110 million Singapore dollar write down on one of its projects, the Panorama.

The cut implies an around 10-15 percent price drop from the project's launch price of 1,343 Singapore dollars psf ($1,062) in January, with only 54 units out of the total 698 having sold so far, Song noted.

—By CNBC's Leslie Shaffer. Follow her on Twitter @LeslieShaffer1

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.