Long-term outlook good, but few worries remain
THE dynamism of Southeast Asian economies is pushing Singapore to the fore as a regional service centre in the super heavyweight class.
Although long-term prospects look bright, there are some rough waves to ride out. Analysts point to oversupply in two principal sectors of the local property market.
While oversupply of retail space, particularly along the Orchard Road tourist belt, has been well gazetted, most home buyers seem unaware that they may be walking on rice paper.
For Peter Churchouse, of Morgan Stanley, an international securities firm, the contention pivots on whether speculators who have committed under pre-sale terms - buy now, pay later - can cope with mortgage payments because of the proportionately thin tenant/buyer market.
Sales last year were the most active recorded in private-sector sales. Net demand came to 6,263 units but there were 9,892 due for completion every year up until 2000, a recent report by Richard Ellis noted.
Many market observers point to the historical disparity between what is scheduled to come on line and what eventually does. They argue that initial projections are usually way above the reality.
Tay Koh Poh, associate director in charge of consultancy and development with Knight Frank Cheong Chye and Baillieu, said he would continue to recommend the top-end residential sector.
For lower-end and mid-range offerings, however, there was a stand-off between the buyers and the sellers over pricing, Mr Tay said. He said some downward adjustment of sale prices was likely.
One developer, Far East Organisation, has already offered buyers a discount of up to 25 per cent on units in the Dover Parkview condominium development.
Like other consultants in Singapore, Mr Tay believed the commercial office sector had reached a plateau after its year-long recovery.
This view was heavily contested by Mr Churchouse, who expected rentals to surpass previous records in the next two years - at S$12 (HK$66) per square foot and above.
'You cannot look at Singapore as a city of three million people. You must view it as a capital city to a region of 60 million people,' he said. For that reason, it was becoming more popular among service industries. Many were using it as a hub to the neighbouring region.
'That type of mentality will be a big driver in the [office] marketplace,' Mr Churchouse said.
His company intends doubling the size of its operation in Singapore this year. The proportion of office-sector workers in Singapore, he said, could grow to around 13 per cent of the population.
Both experts agreed on the state of the retail sector along Orchard Road. 'Everyone knows it's gone to hell in a basket. Rents are going down and business is slow,' Mr Churchouse said.
Mr Tay attributed the development to unforeseeable influences, including a drop in tourist spending and the intimidating effect of the Singapore dollar on weaker Western currencies.
'Tourists coming to Singapore are not buying and things are not as affordable as they used to be,' he said.
Furthermore, retailers had to contend with the introduction of a three per cent goods and services tax last year as well as the extension of a scheme, from peak hours to all-day, aimed at regulating traffic in the Central Business District.
Local people now preferred to shop in the satellite districts of Singapore and, in this respect, those areas serviced by the MRT had proved particularly popularly, Mr Tay said.
'On Orchard Road, it's the department stores that have been hardest hit. I don't know of any that have posted a profit in the last two to three years,' he said.
Indeed, his observations would include such international operations as Lane Crawford, which, having established premises on Orchard Road in 1992, recently made forced cuts in floor space.
On the other hand, robust growth in manufacturing helped boost demand for industrial land, which, in 1994, rose 124.5 per cent to 227 hectares, the Richard Ellis report says.
During the last three months of 1994, take-up of factory premises increased by 227,000 square metres to 16.2 million sq m. Overall, occupancy for factory space held firm at 97.3 per cent, the report says.
It noted a trend towards high-technology specialty centres, making special reference to The Alpha Building, the first multi-tenanted factory offering wet and dry research laboratories.
Singapore's property market has some wrinkles but, with careful management and under the keen eye of government watchdogs, these can be ironed out.
In its favour were a diversity of factors, including a business-friendly government and the best macro-economic, monetary and physical conditions of any country in the region, Mr Churchouse said.
'It is perceived as the Switzerland of Asia. It has an understandable legal system, contract law is well developed, investment rules are good, the stock market is well regulated and there's a well-educated labour force that speaks good English,' Mr Churchouse said.