Real Estate Developers Association of Singapore (Redas) president Simon Cheong is optimistic that private home prices are unlikely to drop much from current levels as selling prices are close to replacement costs, inclusive of construction costs. Furthermore, developers had a good year last year and thus a healthy war-chest for them to ride the current property slump.

But some analysts disagreed with him. Although big players may have the muscle to wait out the storm, there are some smaller players who may want to dispose of their projects even at low prices in order to generate cash-flow.

Nonetheless, Cheong remained slightly bullish about the long-term property prospect for Singapore saying that the country’s fundamentals are strong and events such as the F1 racing and the integrated resorts will further enhance Singapore’s reputation as a global city.

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In order to cater to the increasing demand for rental flats from needy families, the HDB announced that it will build another 2000 rental flats, and convert existing flats into rental ones in order to raise the number of such flats to 50,000 in three years from the present 43,000.

Demand for rental flats has been on the rise with 5,970 applications in 2007.

Last month, the Government announced it would be introducing new rules on HDB rental flat eligibility in order to stamp out abuse of the system.

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Due to increased demand, HDB announced that it will release 3,000 more flats for sale this year. Flat buyers bought 11,991 new flats in the year ended March 31, more than double the 5,712 recorded the year before.

The HDB’s unsold stock has dwindled from about 2,000 flats last year to some 1,500 now. Hopeful buyers have complained of difficulties and long waits in trying to secure a home.

HDB also gave the assurance that despite the rise in construction costs, HDB flats will remain affordable. The board buys materials in bulk to supply to its contractors, mitigating the increase in costs.

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With the US financial firms falling like dominoes, rental rates for prime office space in Singapore will be affected because financial firms form the biggest demand for such office.

Gains in Singapore office rents will be limited as global economic growth slows. Lehman, which this week filed the biggest Chapter 11 bankruptcy in history, occupies office space in Suntec Real Estate Investment Trust’s Suntec development. The firm has about 270 employees in Singapore.

And rentals may drop further with the coming on-stream of more office space with the completion of the 2.6 million sq ft Marina Bay Financial centre.

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A consortium led by Hoi Hup Realty has been awarded a Design, Build and Sell Scheme (DBSS) site at Lorong 1A Toa Payoh.

The winning bid of $198.82 million works out to about $160 per sq ft per plot ratio - the highest of three bids for the 103-year leasehold plot.

Analysts believed that the break even costs will be around $430-500 psf. However, the break even costs will be even lower if Hoi Hup succeeds in its formal application to the URA to secure provisional permission before 7 Oct 2008. After that date, bay windows and planter boxes will no longer be exempt from Gross Floor Area (GFA) calculations.

The group plans to build about 1,200 HDB flats on the site, of which about a third will be three and four-room flats and the rest five-room flats. And the project is expected to be launched in Q2 2009.

The average selling price is expected to be around $500psf.

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The URA tender for 0.62 ha office site at Mohamed Sultan Road is expected to receive a lukewarm response from developers. This is because when the development is completed in 2010, it will have to compete with some four million sq ft of new office space by then.

The site, which is being sold on a 15-year lease, is tipped to receive bids of around $10 million.

Meanwhile, the URA also launched tenders for two industrial sites on the reserve list. This came after developers applied for the 60-year leasehold sites. The firm that is keen on a Kallang Pudding Road site committed to bid at $10.8 million or above; while the party eyeing the Ubi Avenue 4 site has already committed to a minimum bid of $21.6 million.

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In a recent SLA auction for eight in-fill sites, only four of the sites were eventually sold. Analysts said that the cautious bids showed that buyers were in a wait-and-see attitude due to the downturn in the property market.

In-fill sites are pockets of state land in established landed housing estates that have been left untouched by nearby development or were once used for public purposes.

Of the eight parcels, one received considerable attention. A 15,461 sq ft good class bungalow plot in Ridout Road attracted 34 bids, which drove the opening price of $7.31 million up steadily.

BreadTalk chairman George Quek eventually won the site for $8.96 million or $579.50 psf - the highest psf price of the four sites sold.

As for the unsold sites, SLA will work with the Chief Valuer to re-assess their prices

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Some developers have been quietly oiling their launch machinery in the past few weeks as they get ready for previews and launches after the Hungry Ghosts Month.

With the property outlook expected to worsen before it gets better, there may just be an incentive for some to launch their projects sooner - or wait it out till late-2009/2010.

Another consultant, Knight Frank executive director Peter Ow, said: ‘Whatever name you call it - preview, private invitation, etc, the aim is for developers to test the market. If the response is sufficient at the price they want, they’ll begin sales. If the response isn’t up to what they want, they won’t sell. As a developer, you don’t want to risk launching a project, selling a few units and getting stuck.’

A critical factor affecting developers’ launch decisions is pricing, given the bearish sentiment.

‘Pricing will be more realistic for fresh launches, but for projects released earlier, it would be difficult for established developers to trim prices without upsetting earlier buyers, especially VIPs,’ a seasoned property consultant said.

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Average occupancy cost of prime office space in Raffles Place grew only 1.1% quarter-on-quarter to $19 per square foot per month (psf pm) in the second quarter of 2008.

Apart from Raffles Place, Shenton Way/ Robinson Road/Cecil Street and decentralised areas, growth in occupancy costs in other areas like Marina Centre and Orchard Road was flat in 2Q 2008.

This is by far the most convincing sign that office occupancy costs in Singapore may have peaked.

As more new supply comes on stream, office occupancy is likely to ease, thus thwarting growth in occupancy costs in the CBD for the rest of 2008.

Besides, the cautious business outlook, the current market trend of companies gravitating towards cheaper premises like decentralised office buildings, industrial properties, business parks and disused state properties is also putting a downward pressure on office occupancies.

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The collective sale of five small estates near Thomson Road seems to have reached an impasse due to a public road. But the owners of 88 units set to keep the $12 million deposit even if the deal is botched.

The deal was inked in November 2007, when a unit of listed developer KSH Holdings signed up to buy Norfolk Court, Mergui Lodge, Northern Mansion, Mergui Court and The Mergui for $120 million.

The deal however hit a snag when the firm tried to buy a 1,000sq m section of a road from the Singapore Land Authority (SLA). The land is needed so that the five estates can be combined to form a larger plot for economy of scale.

However, the authorities had priced the land at $16 million – double what KSH and industry experts had earlier estimated. The property firm has appealed to the SLA to review the price.

If no consensus is reached, the deal will be off, but the flat owners will keep the $12 million deposit as per the sale contract. That works out to about $136,000 on average for each of the 88 units. If the deal goes through, on the other hand, each unit stands to receive between $906,856 and $1,908,491.

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