By Mr. Propwise

Many observers of the Singapore property market believe that based on a host of local and external factors, sentiment towards buying real estate should be weak. Locally, we have a large amount of upcoming supply coming on to the market in the next few years, and greater caution on the part of the government in letting too many foreigners in due to political pressure. Externally, we have plummeting stock markets worldwide, weak employment numbers in the United States and an uncertain situation in Europe. If any crisis happens, Singapore will certainly not be spared given the open nature of our economy.

Based on the above laundry list of worries, a rational person could be expected to come to the conclusion that property sentiment and sales should thus be weakening. But he’d be wrong. Strong demand at some mass market condo launches have led to increased optimism among developers and has in turn supported developer demand for landbank replenishment outside of the central areas. And you can’t blame the developers – despite all the things they should be worried about, what they see is buyers lapping up projects they put up for sale, and record prices being achieved for certain areas.

Developer sentiment index finally rises after four declining quarters

The 1Q12 REDAS-NUS sentiment index (composite), a quarterly survey that senior executives of most major developers participate in to gauge their sentiment towards the market, after four declining quarters, finally increased to 4.6 in the first quarter (versus the trough of 3.3 last quarter). A score below 5 (out of 10) reflects a belief that property market conditions are worsening, but the change in the index over time is reflective of the trend of developer sentiment.

The Composite Sentiment Index is made up of the Current Sentiment Index and the Future Sentiment Index. The Current Sentiment Index, which asks survey respondents to rate current conditions versus six months ago, improved from 3.5 in 4Q11 to 4.8 in 1Q12. The Future Sentiment Index, which asks survey respondents to rate their expectations of market conditions over the next six months, improved from 3.1 in 4Q11 to 4.4 in 1Q12.

Furthermore, 77% of developers surveyed expected more residential property launches over the next six months, up from 54% last quarter. Only 35% of developers surveyed in 1Q12 expected moderately lower prices for the next six months, versus 67% the last quarter.

Strong demand for landbank remains

Developers’ optimism about the residential market, and in particular the mass market residential segment, has translated into strong demand for suburban condo sites. The recent tenders for condo plots in Jurong and Sengkang, which were both sold for higher PSF PPR prices than similar nearby plots bought two years ago, show that developers continue to believe in the strength of this segment, and are betting with their wallets that prices will not come down significantly (if at all).

Are they justified in this belief? Only time will tell…

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