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<p><br/>By John Burton in Singapore</p>
<p>Published: August 17 2008 17:35 | Last updated: August 17 2008 17:35</p>
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<p>Singapore has taken on the appearance of a vast building site. Old apartment blocks are being torn down to make way for futuristic condominiums, including one in the shape of a huge sail. A new financial district in central Singapore is rising next to the city-state’s first casino resort complex, to be operated by Las Vegas Sands.</p>
<p>The boom in construction, which rose 17 per cent between April and June, reflects a recent surge in property prices, including a 70 per cent increase in homes since 2005. Residential and office rents also jumped nearly 70 per cent last year. Prime office rentals are now the highest in Asia, beating traditional leaders Tokyo and Hong Kong, according to Colliers International.</p>
<p>But, having reached stratospheric heights, the property market looks set to hit some turbulence that could produce an equally significant fall.</p>
<p><u>There are increasing signs that property prices have peaked. New home sales have slowed significantly, with residential prices rising only 0.17 per cent in the second quarter. Increases in office rents are tapering off at a similar rate.</u></p>
<p>Developers are reporting lower profits for the second quarter as the property market cools. City Developments, Singapore’s biggest private property group, last Thursday reported a 15 per cent drop in earnings. CapitaLand and Keppel Land, the two big state-owned developers, have announced profit falls of 43.5 per cent and 16 per cent respectively. Meanwhile, Singapore’s FTSE property share index has fallen 35.2 per cent from its peak last October.</p>
<p>Liew Mun Leong, CapitaLand’s chief executive, partly blamed the earnings fall on “the moderation in the price increase for the Singapore property market,” adding that the outlook for the high-end market would “probably be very flat”.</p>
<p>Singapore has suffered similar boom-bust property cycles before owing to the peculiarities of the market. With nearly 90 per cent of Singaporeans living in state-subsidised apartments, the fate of the private residential sector has rested on a rather small customer base of well-off local and foreign investors.</p>
<p>Just a few years ago, Singapore had one of the most anaemic property markets in the world. In an effort to boost the sluggish construction sector, the government in 2005 eased lending rules to encourage developers to replace old apartment blocks with new ones. The resulting destruction of housing stock created an artificial shortage that drove up rents and triggered a wave of property speculation.</p>
<p>Office rents also climbed owing to a shortage of space as Singapore’s ambitions to attract private banks and asset management firms proved successful. Predictions that more foreigners would move to Singapore added to the optimism about the market’s future.</p>
<p>But the global credit crunch and rising construction costs are now taking their toll, with a slowing economy and falling share prices undermining confidence.</p>
<p>But demand is drying up. Many are struggling to meet mortgage payments as rents begin to fall as a result of the increased supply of new apartments. Citigroup estimates luxury property prices could fall 20-30 per cent from their peak as speculators unload properties. Office rents are also due for a correction. Companies are relocating from the expensive central business district to more affordable areas.</p>
<p>Chua Yang Liang, Singapore research head for Jones Lang LaSalle, the property consultancy, believes the city-state will probably avoid the property market collapse that occurred in 1997 with the Asian financial crisis. He expects Singapore will suffer a moderate downturn similar to that in 2003 when the outbreak of the Sars disease depressed demand.</p>
<p>“Developers are better able to stabilise the market than previously, since the big ones now have the financial capacity to delay new [residential] launches to prevent supply excess while low interest rates are expected to support demand,” he says, predicting a recovery from 2010.</p>
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