Kim Eng Research: Price correction by mid-2012?

The rapid sales at developers' launches in recent weeks will not last, Kim Eng Research said in a report released yesterday, citing the potential supply of units coming on board and wider economic uncertainty.

These factors could lead to a correction in both average selling price and sales volumes by the middle of the year, it said.

Based on the sites sold under the Government Land Sales programme (GLS) that have yet to be launched, the brokerage estimates that the potential supply coming onto the market over the next 12 months stands at 12,248 condominium units, and 2,495 executive condominium units.

Coupled with a "daunting income and employment outlook" due to economic concerns, this could make upgraders more wary come mid-2012.

"That may then lead to the precipitation of mass market prices of up to 20% by end-2013. We also expect primary market sales to be reduced to 11,000 units per annum for 2012 and 2013," said Kim Eng.

In the meantime, home buyers and property developers are back in the market with a vengeance, just one month after the introduction of the additional buyer's stamp duty (ABSD).

Watertown, in Punggol Central, for instance, has sold more than 550 units of its 992-unit mixed-development project since its preview last week. The Hillier at Hillview, too, attracted strong demand, with units transacting at an average of $1,200psf.

"In the near term, demand for attractive suburban projects may continue to be supported by the benign interest rate environment, and our economists are not expecting interest rates to hike up markedly before 2H13," said Kim Eng.

Developers were also active in vying for well-located sites during GLS tenders: in particular, the two most recent tenders at Clementi Avenue 6 and Simon Road attracted eight and 11 bids, respectively.

The top bidder for the 99-year leasehold condominium site at Clementi Avenue 6 was IOI's property unit, Multi Wealth (Singapore), at $554.4psf ppr, while the site at Kovan Road/Simon Road was awarded to a consortium comprising Hoi Hup Realty, Investment Focus and Oriental Worldwide Investments, at $506.6psf ppr.

Industry players said that bids were within the current land price range for good suburban residential sites, and that attractively located sites will probably continue to draw strong participation from developers despite the uncertain market conditions and cooling measures.

Source: The Business Times

Click on link below to read the full report by Kim Eng Research:
http://www.scribd.com/fullscreen/79538140?access_key=key-230d9no2ewn098s8c6iw

The wife and I wonder if the recent hoo-ha about "strong take-up rate" (post ABSD) at selected  launches are boosted by the fact that developers have been rolling out projects in prime suburban locations (i.e. with integrated malls, near to Town Centre and MRT Stations etc).

If we are property developer ourselves (one can always dream!), we will also milk the current market to the last drop with our best sites. These then set a benchmark for other "less attractive" sites that we intend to launch around the area. And even if we have to sell at a bigger discount on the later projects when the market turns for the worse, we would have already made a killing on our earlier "prime" launches... not to mention the super-normal profits that we have accrued over the past years!

And while reading the Kim Eng report, the wife and I cannot help but notice the interest rate projections for this and next year. Some may call it "benign" but we rather see it as a false sense of security with deterimental consequences...

Below is an entry that we have posted earlier this month on the likelihood of mortgage rate increases in 2012 and its implications:
http://sgproptalk.blogspot.com/2012/01/sor-is-soaring.html
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