Overly optimistic bids may derail property market rebound

While the property market is expected to head for a rebound, analysts believe the optimism surrounding Singapore’s property market may lead to market instability, reported Singapore Business Review.

This comes as the intense competition for en bloc sites had pushed land prices higher.

RHB Research revealed that land bids are factoring in a 10 to 40 percent hike in prices assuming property developers achieve their usual profit margin of 10 to 15 percent.

It noted that developers have to build, sell, and complete a project in five years or else they would have to contend with stiffer penalties in the form of additional buyer’s stamp duty (ABSD), which is 15 percent of land cost plus interest expense.

“Whilst we do expect prices to rise, we believe the bids are overly optimistic and could limit profit margins of developers despite the expected price increase,” said RHB analyst Vijay Natarajan.

With this, Credit Suisse said the government should continue to keep the property cooling measures on hand in the event the market overheats.

In fact, both RHB and Credit Suisse expects the government to continue to monitor market developments and introduce additional measures if needed.

“Should there be a significant increase in prices, especially if the current elevated vacancy rate of 8.4 percent persists, we believe there could be risks of a further tightening in property cooling measures,” said Credit Suisse analyst Gerald Wong.

The Monetary Authority of Singapore (MAS) has already warned that the development of Government Land Sales (GLS) and en bloc sites will raise the private housing stock of the next three to five years, and add to existing vacancies within the medium term should it not be matched by occupation demand.

 

This article was edited by Keshia Faculin.