Prices soar as Lion City enjoys spectacular time

PUBLISHED : Wednesday, 10 November, 2010, 12:00am
UPDATED : Wednesday, 10 November, 2010, 12:00am

While house prices remain mixed in Europe and the United States, Asia is booming, with Singapore in pole position, according to the latest Global Property Guide.

The report calls Singapore a 'spectacular performer' with 34 per cent house price increases year-on-year to the end of the second quarter.

This was the highest increase among all countries surveyed by the guide, and the highest recorded year-on-year increase in the country since 1995.

Official figures look even rosier. According to the Urban Redevelopment Authority (URA), Singapore's all-residential private property price index (PPI) rose 38.2 per cent year-on-year in the first half.

On a year-to-date basis, based on URA's flash estimate for the third quarter, the PPI grew 14.7 per cent. Overall, the PPI has recovered by 42.5 per cent since bottoming in the second quarter of last year.

Tay Huey Ying, director for research and advisory, Colliers International, explains why the stars are aligned for Singapore, citing the country's strong economic recovery from the global financial crisis, low interest rates, a buoyant Housing Development Board market (HDB, the equivalent of public housing) and small-format apartments.

'A tightening employment market and potential increment in salary that comes with the robust economic growth has buoyed buyers' confidence about their financial ability to commit to mortgages,' she says.

'Low interest rates have diverted many from depositing cash in the banks to investing in real estate which yields higher returns. It also resulted in cheaper mortgage packages, contributing to the attractiveness of investing in real estate.

'The buoyant HDB resale market that boosted prices has enabled many to upgrade to private properties. And the growing availability of small apartments in the primary market has also boosted sales, as the lower capital outlay has drawn many investors whose appetite remains measured given the lingering uncertainties on the global front.' But property shouldn't perform like a runaway road train, at least not for too long. Late last year and early this year, the Singapore government stepped in with measures to curb speculation and counter the risk of a bubble.

The idea, to administer cooling measures in small doses, was intended not to hurt genuine demand, Tay says.

While initial supply measures did not have an immediate impact on sales volume or property prices, they are beginning to show results, as developers have now become more selective in participating in government land tenders, and bids submitted have become more subdued.

'The latest round of cooling measures would have more bite as some measures work directly to reduce affordability, such as lowering the loan-to-value ratio to 70 per cent and increasing minimum cash quantum to 10 per cent, while others work directly to reduce demand.'

This should work to cool buying fever, while the cutback on affordability should ease the frantic chase of property prices.

'We foresee private home price growth to continue to moderate to not more than 2 per cent. 'In the longer term, the limited supply of land and the growing population, especially in light of Singapore's rapidly developing status as a global city, should help to support property prices. Home prices should see a general uptrend in the long-term.'