Singapore Property Market Resilient Even as Sales Fall

Signs of a cooling in Singapore’s red-hot property market, which has seen double-digit falls in new home sales, do not have analysts concerned – they expect the real estate sector to remain resilient this year thanks to strong demand from a growing population and low borrowing rates.

Stephen Studd | Photographer's Choice | Getty Images

New private home sales plunged for a second month running in June, dropping 19.4 percent month-on-month to 1,372 units, after falling 31.6 percent in May from April.

“The softening in demand was caused by fewer launches of large projects in recent months. In Singapore, supply creates demand. If you build, they (buyers) will come,” said Alan Cheong, research head at Savills Singapore. He said that in the second quarter, although 14 major projects were launched, only one was of a large scale.

According to Cheong, the recent decline in sales is unlikely to have a material impact on property prices and buying is likely to pick up with a slew of major launches scheduled for the second half of the year.

Analysts say that property prices in Singapore will remain supported as long as 1500 units are sold per quarter. They add that the last time new home sales dropped below this level was during the fourth quarter of 2008, when only 419 units were sold.

And there is enough fundamental demand to meet this target, given the city-state’s low unemployment rate and growing population, which brings in a continued flow of fresh demand for property, property experts say. Singapore’s population of 5.1 million has grown by 25 percent over 10 years.

Singapore’s Private Property Index (PPI) rose 0.4 percent in the April-June period, after falling 0.1 percent in the previous quarter. Both Cheong and Chor Hoon Chua, Head of Asia Pacific Research at property consultancy DTZ, forecast private home prices will remain flat this year. Home prices in Hong Kong, by comparison, have risen around 8 percent this year.

The recent data showing a cooling in property prices does not appear to have dented the appeal of big property companies such as CapitaLand and Keppel Land . Both firms have seen their share prices rise around 16 percent and 20 percent respectively since late May. That means the stocks have outperformed gains in the broader Singapore market , which has gained about 9 percent.

DTZ’s Chua says Singapore’s low interest rates, which are closely tied to U.S. rates, should continue to attract buyers to the market. Mortgage rates in Singapore are at a record low.

"Interest rates are going to remain low, which is going to sustain demand. Unless there's a recession and people start losing their jobs, then things might change," she said.

Singapore's economy unexpectedly contracted 1.1 percent in the second quarter from the previous three months, following a 9.4 percent expansion in the first quarter.

Developers to Maintain Prices

Cheong said despite the fall in transaction volumes in May and June, developers in Singapore are not under pressure to lower prices.

“Developers have reaped super normal profits from 2005-2011. You can starve them for a year and nothing will happen,” he said.

Keppel Land this month reported an 87.5 percent rise in second-quarter profit to S$94.7 million ($75 million), helped by the developer’s high-end residential project in Singapore.

Cheong added that developers are not afraid to sit on unsold inventory, noting that for many of their projects, they breakeven when they clear 65-70 percent of the units.

“They have no compunction in the immediate term to lower prices to clear the inventory,” he said.