The Singapore property market is highly cyclical. Historically, cycles average 11 years from peak to peak. The current price cycle, whose upswing began in mid-2004, is expected to peak in 2010 when many major projects are completed (e g the Integrated Resorts and Marina Bay Financial Centre). Healy Consultants has first-hand experience of the Singapore property market, and consequently we are ideally placed to offer honest, practical and potentially cost-saving advice to international property investors. The following is an overview of the Singapore property market in both commercial and residential sectors:

1.

Although Singapore property prices have been booming since 2006, the local economy faces a triple threat of i) rising inflation, reaching a 26-year high of 7.5% in April 2008 ii) slower-than-expected economic growth and iii) weaker exports. For example, International Enterprise Singapore cut its 2008 growth forecast for non-oil domestic exports to between 2% and 4%, from 4% to 6% previously.

2.

The Singapore property market remains vulnerable to global financial market turbulence and uncertainties over the US sub-prime mortgage crisis, which could negatively affect Singapore's economic growth.

3.

Weakening sentiment in the luxury residential sector of the Singapore property market is highlighted by Kuwait Finance House's decision to withdraw its acquisition of Phase One of Goodwood Residence in Bukit Timah for S$818.4 million. On the other hand, Merrill Lynch upgraded its investment rating for two large Singapore property developers, CapitaLand and City Developments, in May 2008.

1.

After seven years' depression in the residential property market (see graph), the market rebounded in 2007, especially for collective (enbloc) sales. Approximately S$12.5 billion worth of enbloc sales completed in 2007, up 50% on 2006 and well beyond the S$2 billion total in 2005. The 2007 sales figures were the highest in 13 years, due to a robust regional economy and ever increasing arrivals of expatriates in Singapore.

2.

Some 15,000 new homes were bought in 2007, up 35% from 2006 new home sales. 25% of total new home sales were by foreigners and permanent residents (PR).

In 2007, Singapore's residential property market boomed because of i) strong economic growth and positive sentiment in local markets ii) a sharp influx of western expatriates to Singapore to take up professional positions, particularly in the financial services industry iii) tight supply of property and iv) the presence of Singapore property market speculators.

4.

During the 2007 Singapore property market boom, luxury properties were considered good value compared to similar properties in Hong Kong and Tokyo. However, real estate consultancy Jones Lang LaSalle reports capital values of luxury homes in Singapore are now just 2.1% lower than in Hong Kong, compared to 24.6% in 2007.

5.

However, 2008 may represent a peak in the Singapore residential market, particularly at the high end. According to Nomura Equity Research, average luxury property prices are forecast to fall 32% from the 2007 peak in the 2008-2010 period.

6.

Going forward, growth in the Singapore property market is set to be driven by the mid-end and mass-market sector, which are expected to experience price rises of 10 to 15%.

7.

Historically, Singapore property market downturns are caused by property oversupply. According to the Urban Redevelopment Authority, at the end of first quarter of 2008 a total of 67,736 private housing units were uncompleted. Of these, 42,685 units were still unsold.

8.

Other downsides to the Singapore residential property market include:

i) Investors expecting capital appreciation in the Singapore property market should note that 90% of Singaporeans already own homes and therefore are in no hurry if prices are not attractive;

ii) Even at 2008's peak rental levels, Singapore rental yields average only 4 to 5%, with long-term rental yields expected to face further downward pressure due to increased housing supply;

9.

In summary, Healy Consultants believes the residential sector price peak has passed and that current conditions in the Singapore property market are unattractive to investors, despite attempts by property developers, real estate agencies and those with vested interests to claim to the contrary.

Despite the US economic slowdown and global credit crunch, prime office rents in Singapore's Central Business District (CBD) reached S$17.35 per square feet (psf) per month in the first quarter of 2008, up 8.5% on the fourth quarter of 2007. However, asking rates for the premium office buildings in Raffles Place touched S$21 psf per month in 2007. 6 Battery Road was the most expensive, quoting S$21 psf per month.

2.

Demand for Singapore CBD office space is driven by i) banks and financial institutions expanding private wealth management services in Asia ii) tight office space supply in the Singapore property market. To highlight this, the prime office space vacancy rate was just 0.6% in the first quarter of 2008 (although down from 0.2% in the fourth quarter of 2007).

3.

The tight supply situation will be eased between 2008 and 2012 when an estimated 10.3 million sq ft of office space will come onstream in Singapore.

4.

Going forward, the commercial property market in Singapore will be exposed to any local economic slowdown caused by the general global downturn.

Total investment sales of commercial property registered an all-time historic record of $50.8 billion in 2007, up 66% from 2006 sales of S$30.5 billion. This compares with the aggregate investment sales total of just S$55 billion from 1996 to 2003. Office investment sales more than doubled, from S$4.4 billion in first-half 2007 to around $10.5 billion in the second half. Investment sales are considered a barometer of developers' and big investors' mid-to-long-term confidence in the market.

The largest single property sale in the public sector in 2007 was the S$2 billion sale of Marina View Parcel A to MGPA, followed by the S$1.7 billion sale of the former NCO Club and Beach Road camp grounds to a consortium comprising City Developments, Dubai World and Elad Group. In the private sector, the top deal was Farrer Court, which was sold for S$1.3 billion to a consortium including CapitaLand, Hotel Properties, Wachovia and a foreign fund. The next biggest transaction was MGPA's S$1 billion purchase of Temasek Tower.

Average monthly gross rental at the end of 2007 on Orchard Road was S$45.45 per sq ft (psf) per month, up from S$36.88 psf per month at the start of 2005. This remains well below prime retail rents in Hong Kong (S$86.40 psf per month), London ($126.61 psf per month) and New York ($142.77 psf per month). That said, prime rents in Kuala Lumpur and Bangkok are lower than in Singapore.

4.

Orchard Road malls enjoy occupancy rates of 95% to 98%, on higher sales productivity due to strong economic growth.

Between 2008 and 2010 almost 7 million sq ft of retail space will come onstream in the Singapore property market. For example, almost 2 million sq ft of new retail gross floor area is set to open on Orchard Road area to 2011, up 33% on current retail space. Most new space will come from new mall launches such as Ion Orchard and Orchard Central in 2008. It is a decade since a new shopping mall was built at Orchard Road. In 2008 alone, 930,000 sq ft of new shops are expected to launch in Orchard and Scotts Roads.

Retail space in Orchard Road is expected to soften retail rents. Monthly rental growth on Orchard Road slowed to 2.6% in 2007 to S$45.50 psf in December 2007.

For more information on the Singapore property market, call our Singapore office at (+65) 67350120 or contact us at email@healyconsultants.com