Sentiment index rises after falling 4 quarters

After declining for four consecutive quarters, the Redas-NUS Real Estate Sentiment Index (composite) increased in the first quarter of this year to 4.6, buoyed by recent strong demand at some mass-market private condo launches.

At its nadir in Q4 last year, the index was 3.3. It dropped for four consecutive quarters since Q4 2010, when it was 5.7.

The index ranges from 0 to 10, with a score below 5 indicating deteriorating market conditions while a score above 5 shows improving market conditions.

The index was minted by Real Estate Developers' Association of Singapore (Redas) and National University of Singapore's Department of Real Estate (DRE). The Current Sentiment Index rose from 3.5 in Q4 2011 to 4.8 in Q1 2012. For this index, respondents are asked to rate overall Singapore real estate market conditions now compared with six months ago.

The Future Sentiment Index, where respondents rate overall property market conditions over the next six months, improved from 3.1 for Q4 2011 to 4.4 in Q1 2012.

As a result, the Composite Sentiment Index, which is the average of the two indices, increased from 3.3 in Q4 2011 to 4.6 in Q1 2012.

Seventy-seven per cent of the developers surveyed expect more residential units to be launched over the next six months, up significantly from 54 per cent in Q4 2011. Only 5 per cent expect fewer launches, down from 28 per cent in Q4 2011.

Forty-six per cent of developers expect prices to hold at the current level for the next half-year, up from 25 per cent previously; 19 per cent expect moderately higher pricing while the remaining 35 per cent anticipate a moderately lower price trend.

In contrast, for the Q4 2011 survey, 67 per cent of developers predicted prices softening in the following six months.

Overall, respondents in the latest Q1 survey are cautiously optimistic about the outlook for Singapore's real estate market, returning better net balances in current and future performance scores than the previous quarter.

Expectations for the residential sector were mixed. Current net balance of the suburban residential sector rebounded from -26 per cent in Q4 2011 to +24 per cent in Q1 2012, but survey respondents were less optimistic over the sector's performance in the next six months, with a -6 per cent future net balance, though this is a better showing than the -57 per cent future net balance in the previous survey. For the prime residential sector, current net balance remained at -67 per cent but future net balance improved from -79 per cent in Q4 2011 to -48 per cent for Q1 2012.

Net balance is the difference between the percentage of respondents with positive expectations and the percentage of people who have negative expectations.

Survey respondents were also asked about their views on methods to cool aggressive land bidding. A majority (68 per cent) agreed that simultaneous Government Land Sales site launches could moderate aggressive bids at tenders.

Market watchers note that this is already being practised by the government, and this may have prompted a survey correspondent to suggest: "Tenders should close on the same day, rather than launched on the same day with different closing dates, to reduce competition for sites and aggressive bidding."

In the past, market watchers have remarked to BT that having tender closings for two or more GLS sites on the same day - which used to be the case in the past, for instance, in 1996 and 1997 - tends to favour bigger developers with strong financial muscle to pick up two or more sites at one go and helps them eliminate competition from smaller or financially weaker players with capacity to buy only one site.

Forty-two per cent of the Redas-NUS Q1 2012 survey respondents disagreed with the view that an open auction system would be more effective than the highest-price sealed bid tender system in mitigating aggressive land prices. As a survey correspondent remarked: "An open auction system would moderate aggressive land bidding if there is visibly less or no competition at the auction. However, for prime located sites, an open auction system would fuel aggressive land bidding especially with strong competition present at auction."

Source: Business Times – 15 May 2012