ST : Demand for high-end homes may lose steam

May 13, 2010

Demand for high-end homes may lose steam

Investors turning wary as doubts are cast over global economic upturn

By Esther Teo

CELEBRATIONS for the much-anticipated full comeback of the luxury end of the property market this year might just have to be put on hold.

The sector's nascent recovery is looking a little shaky as investors grapple with lingering fears over the Greek debt crisis and general uncertainty still plaguing the global economy.

Analysts say that despite increasing demand and rising prices for upmarket residences since last year, investors might be starting to get wary again as the shaky European economy raises doubts as to whether the global recovery can be sustained.

'It is a fairly uncertain situation. We don't know if the crisis is really over or if other countries like Spain and Portugal could require more money,' Ngee Ann Polytechnic real estate lecturer Nicholas Mak said. '(The Greek debt crisis) puts a damper on sentiment, and if it continues affecting the global financial market, it could impact investors' available funds.'

The recovery so far has been impressive.

The high-end sector with homes in the core central region (CCR) was the star performer this year with first-quarter sales numbering 1,927 - or 44 per cent of total new homes sold - and a 4.4 per cent increase in prices.

The CCR includes prime districts, the financial district and Sentosa.

But analysts are more cautious, and expect the high-end segment to track rather than outperform the wider market.

For example, sales of condos at Sentosa Cove have been slow.

In releasing its first-quarter results yesterday, City Developments (CDL) said the 228-unit The Residences at W Singapore Sentosa Cove had sold about half of the 56 units launched in March.

The project has also been marketed in Hong Kong, Jakarta and Shanghai. The group says it still has confidence in Sentosa's medium to long-term potential.

'When the W Singapore Sentosa Cove hotel is operational, the property value will be enhanced, and there will be a premium attached to the branded residences,' CDL said in its results statement.

Marina Bay Suites - a 221-unit project with a 99-year lease - has seen a 100 per cent take-up of the 128 units it has released so far at two previews.

But while it released 90 units at its first preview last November, the figure was cut to 36 at its second preview late last month.

Raffles Quay Asset Management - the manager of the project - said that 'units launched were due to requests from guests who attended the preview'.

Mr Mak said the smaller second preview reflected weaker demand, as a project would be viewed poorly if its released units did not sell well.

However, he also noted an increase in psf prices the second time around.

SC Global's 41-unit Seven Palms has sold nine of the 10 units it has released to date. It was first launched last October, but no units have been launched this year. The developer has no current plans for further launches this year.

'As a general trend, however, we have seen an increasing number of high net worth individuals seek out tangible assets such as prime properties which are more stable and less prone to the volatility of the stock market,' a spokesman said.

Mr Colin Tan, research and consultancy director of Chesterton Suntec International, said developers often time project launches according to market conditions.

'Investors are taking a wait-and-see approach, especially with the sudden drop in the Dow Jones and the Greek crisis causing nervousness among some...

Sales might dip a bit for the moment, but will pick up again once the markets sort themselves out,' he said.

Showflats had gone quiet the past weekend in a 'drastic change of sentiment', as investors usually held back when markets were volatile, he said.

The lower than expected sales simply reflected weaker demand since the cash of the wealthy, and even their bonuses, are often tied to the health of the global economy, Mr Mak said.

However, DTZ's head of South-east Asia research Chua Chor Hoon believes that demand for luxury residences will be sustained as most of these home buyers are foreigners from Asian countries such as Indonesia, China and India, which are experiencing strong growth.

'There is caution and there is uncertainty, but the effect on the world economy remains to be seen...The recent European rescue package might be able to soothe fears in the market,' she said.

Most analysts, however, still expect prices for posh residences to trend upwards. Mr Mak and Ms Chua expect a 10 to 15 per cent rise in prices this year, while Chesterton's Mr Tan is less bullish with a prediction of 10 per cent or less.

'Even without the Greek crisis, it has been a struggle to reach previous price highs. The Greek crisis has now made it even harder to advance on the price front... (and) brought investors' attention to the fact that economic fundamentals are still a long way off from catching up with the price increases,' Mr Tan said.

esthert@sph.com.sg