Saturday, August 13, 2011

Property buyers likely to wait it out

FEARS that interest rates will rise and stifle the local housing market have all but disappeared amid the unfolding global stock market turbulence.
In a bid to stabilise markets, the United States Federal Reserve this week vowed to keep US interest rates at historic lows for at least two more years.

But property buyers are taking a cautious attitude nevertheless, and are expected to wait to see how the stock market chaos plays out.

Experts say the volatility has presented a double-edged sword that could fall either way.

The low US rates are set to keep local rates at rock-bottom levels and bolster the housing market, but the recent wild stock market swings are likely to spook some property buyers, experts say.

Further blurring the picture - and analysts' expectations - is a possible fresh financial stimulus in the form of a third round of US 'quantitative easing', which amounts to printing more money.

This could send more cash flowing into the region, including Singapore and its property sector.

The prospect of low rates for at least two more years was timely. Before that, fears had emerged that the end of the second round of US quantitative easing in June could have meant higher interest rates - belting the housing market.

With that fear seemingly on hold for two years, and on the back of a strengthening Singdollar, key local money market rates have responded by heading down.

The three-month swap offer rate, for example, plunged into negative territory to -0.0119 per cent for the first time on Wednesday. With some mortgages pegged to this benchmark, experts say affected home loan rates might fall between zero and 0.6 per cent.

Brokerage Kim Eng said yesterday low interest rates could keep demand for homes fairly strong, with owner-occupiers likely to be the key driver.

'And with global stock markets heading into bear territory, it may prompt more investments in property in this part of the world as investors also seek to hedge against inflation,' it added.

'On a normalised basis, we still expect an average of 1,000 new private residential units being sold per month.'

But interest rates are only part of the housing equation. There have been several warnings of an impending glut while stock market volatility and the global economic storm could dent confidence.

In 2008 when stock markets dived at the start of the global financial crisis, home sales plummeted almost 70 per cent to just 118 units sold that October.

Experts say, however, it is too early to tell how the current crisis will play out. It could be just a short-term blip or a longer-term correction that will chill the property market.

But buyers are likely to keep their heads down for the next few weeks.

Still, 100 units have been sold at 493-unit Boathouse Residences in Serangoon at an average $880 per sq ft in the past week since a soft launch.

Mr Elson Poo, assistant general manager (sales and marketing) of its developer Frasers Centrepoint Homes, said: 'The more popular (unit types at Boathouse) are the bigger ones which appeal to owner-occupiers. Investors, on the other hand, are on the sidelines, watching to see how the global economic development pans out before making a decision.'

Global Property Strategic Alliance chief executive Jeffrey Hong said demand, even for suburban homes, might be 'stagnant' for a while as buyers await clearer signs of the market's direction.

Mr Hong noted that the suburban segment - where many buyers are owner-occupiers or HDB upgraders - is likely to be less affected than high-end homes, which often attract investors.

UOL president Liam Wee Sin said concerns remain over the faltering US and European economies but added it was too early to tell how stock market volatility might affect property sentiment.

He noted that low interest rates, ample funds and a strengthening Singdollar all boded well for the market although he expects sales and prices to moderate.

'There are different segments of buyers. Foreigner purchases, for example, may continue unabated as the strengthening Singdollar might make residential properties here a relatively safer asset to invest in compared to the volatile stock market,' added Mr Liam.

Property investor Sameer Aswani, a 35-year-old businessman, said the Singapore market is still fundamentally sound despite the shaky global economy.

'Interest rates are at an all-time low so if a good opportunity arises, I will still go ahead with a home purchase,' he added. 'At most, I see the market correcting slightly but of course in the light of the uncertainty now I'll be more cautious.'

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