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Developers see funds flowing here after QE3

Two-thirds of property developers in Singapore expected the third round of quantitative easing (QE3) in the US to result in more funds flowing into real estate investment trusts (Reits), a survey showed.

The poll by the Real Estate Developers' Association of Singapore (Redas) and National University of Singapore (NUS) also revealed that a sizeable ratio of industry players expected QE3 to have an impact on the property market in other ways.

Nearly half of the 66 respondents expected greater demand for commercial and industrial properties, while 40 per cent believed that there would be more aggressive bidding for land. Foreigners would also buy more residences in Singapore, 44 per cent of developers believed.

The questions about QE3's impact formed part of the Real Estate Sentiment Index (RESI) survey by Redas and the Department of Real Estate (DRE) at NUS.

The overall Composite Sentiment Index, which reflects the general feel about the property market in Singapore, rose to 4.9 in the third quarter, from 4.7 in Q2.

It was the third straight quarter of increase. However, it remains below the 5.0 mark which separates optimism from pessimism.

Sing Tien Foo, associate professor at DRE, said that developers are generally upbeat currently. "However, they remain alert of possible macro and policy risks that could destabilise the market in the next six months," he added.

Within the various sectors in the property market, sentiment was mixed.

Developers were most optimistic about the current and future outlook in the hotels and service apartment sector.

But the office sector remained a drag with a continued negative current and future outlook.

Developers were also pessimistic about the industrial and logistics sector in the near future, although they currently hold positive sentiments.

There was improvement in sentiment towards the prime residential sector compared with the second quarter, and the current view and outlook for the suburban residential sector remained positive.

Reflecting this, most (71 per cent) developers surveyed expected more residential units to launch in the next six months, and one in three expected a moderate rise in unit prices, up from 15 per cent in the previous quarter.

Interest picked up for land sales as well, compared with the previous quarter, the survey showed.

But developers grew more concerned about costs this quarter. Some 55 per cent of those polled were worried about labour cost increases, versus the 47 per cent in Q2, while 38 per cent expressed concern over high land prices, up from 31 per cent.

Hard to gauge impact of latest cooling measures

It remains to be seen if the latest Singapore property cooling measures will hurt the bank's home loans growth, which was up 10 per cent year to date, said DBS Group Holdings' chief executive Piyush Gupta.

Speaking yesterday at the group's third-quarter results briefing, Mr Gupta said "don't know" when asked if the latest measures announced on Oct 6 would slow down home loans. Mr Gupta is the first bank chief to comment on the impact of the property measures.

DBS, the nation's largest home loans bank, saw total group mortgages rise more than 8 per cent from a year ago and almost 7 per cent year-to-date to $44.1 billion. The bank's total loan book rose 9 per cent year-to-date, driven by Singapore property and corporate loans. Housing loans make up 25 per cent of total loans growth, he said.

He pointed out that the last two macro-prudential measures succeeded in driving home loans growth down for two to three months, and then things went up again.

Mr Gupta said the latest measures, which lowered the loan to value (LTV) ratio considerably, could see some people pulling out because of affordability issues as monthly instalments will go up. The LTV is now 60 per cent for a borrower with no outstanding residential property loan, compared with 80 per cent previously, and 40 per cent for a borrower with one or more outstanding home loans, compared with the previous 60 per cent.

Under the rules, there is now an absolute limit of 35 years on the tenor of all residential property loans and the refinancing loan market is expected to be hit hard.

Refinancing makes up 20-25 per cent of DBS' total home loans while 75 per cent are new loans, he said.

He expects the impact on refinancing business to be neutral, he said.

And if the measures work, it could lead to lower property prices which could bring borrowers back into the market, he said, adding that the current low interest rates continued to be a strong factor.

Mr Gupta said that DBS' new home loan bookings in October was holding up. In the past three weeks, it "has been as strong, as strong as ever", he said.

But he noted that October's bookings were for options signed or purchases committed before the Oct 6 measures, and "not reflective of the new measures".

"It's tough for me to gauge what will happen . . . we need to watch through the next few quarters."

Total bank loans growth slowed to 0.7 per cent over the month of September, as sluggish economic activity dampened the expansion of business loans.

Preliminary figures from the Monetary Authority of Singapore yesterday show that domestic banking unit loans edged higher to $472.3 billion by the end of September, slower than the 2.3 per cent growth in August. Housing and bridging loans - the largest consumer loan category - rose a slightly faster 1.2 per cent month-on-month and 14.5 per cent year-on-year.

Property market sentiment up again

Property market sentiment improved again slightly in the third quarter, although developers remain cautious over possible macro and policy risks that could destabilise the market.

The real estate composite sentiment index for July to September inched up to 4.9, from 4.7 in the second quarter. It is compiled by the Real Estate Developers' Association of Singapore (Redas) and the National University of Singapore (NUS).

The index had declined for four straight quarters last year to a trough of 3.3 in the fourth quarter.

A score below five indicates deteriorating market conditions while a score above five reflects improving market conditions.

Redas chief executive Lee Suan Hiang said that although sentiment has improved, developers are concerned over the boost in land supply and the cost of doing business.

"On top of higher land cost, in this survey, developers have added higher labour cost and higher material cost as the two leading concerns. These have raised total development cost and exerted pressure on unit pricing," he said.

Industry players surveyed have become less gloomy about the prime residential sector.

A net balance of 8 per cent of respondents said they were pessimistic about how the sector was currently faring. This is down from 35 per cent expressing pessimism in the quarter before.

A net balance figure is the difference between the proportion of respondents who were optimistic and the proportion who were pessimistic.

Also, a net balance of 2 per cent were optimistic about the sector's prospects for the next six months, reversing a net balance of 21 per cent who were gloomy in the earlier period.

The office sector is also enjoying improving sentiment with a net balance of 9 per cent saying they were pessimistic about its current state. That is markedly better than the net balance of 31 per cent in the three months before.

However, this upswing might be short-lived as those surveyed were less upbeat about the outlook for the next six months, with 35 per cent expressing pessimism for conditions over the next half year.

The hotel sector led the sentiment index with the brightest outlook. A net balance of 35 per cent were positive about current conditions while the outlook for the half year ahead was almost as bright with a net balance of 27 per cent feeling cheerful.

A statement jointly issued by Redas and NUS yesterday also noted that 23 per cent of developers surveyed plan to launch substantially more units over the next six months.

About 60 per cent of respondents expect prices to stay steady, down from 65 per cent previously, while more developers are showing keener interest in government land sale and collective sale sites.

A majority of survey respondents also expect the third round of quantitative easing - the big cash injection from the US central bank - to lift fund flows into the real estate investment trust market.

Source: TheHouseSale.Info @ www.thehousesale.info

Edited November 4, 2012 by Goobii