June 2010

Update on Singapore Property Market

This research report has been

prepared by Mr Nicholas Mak,
specially for distribution to
clients of:

Sales volume in May and June returns to more stable level

In the past few months, those who were observing the property market closely were quietly asking themselves how long
home prices could continue to rise and would there be a correction. The private home sales figures for May 2010 appeared
to be the bad news that some were expecting. In May, developers launched and sold a total of 1,134 and 1,078 private homes
respectively. This was about half the amount achieved in the previous month and the lowest level this year.

In 2007 and 2009, developers in Singapore sold a total of 14,811 and 14,688 private homes respectively. These numbers are
about 70% higher than the 10-year average annual primary market sales of 8,700 units and the highest record sales so far.
Clearly such peak numbers are not sustainable and could not be repeated every year. There will be periods when the number
of private homes sold would fall below the 8,700-unit level.

In the first 5 months of 2010, developers sold an impressive 7,666 private homes in total. If the sale momentum continues at
this pace for the rest of the year, it would set a new record for the primary market sales in 2010. As such rapid pace of sale is
not sustainable because the global economy is not in the pink of health, all it took is some major event to prick the confidence
of homebuyers and the sales volume would deflate. The European debt crisis is such an event.

However, one should be careful when interpreting monthly statistics. Although the month-on-month (mom) changes in the
primary market sales in May 2010 compared to the previous month, was a sharp decline of 51%, the 1,078 units sold by
developers in May was still a respectable figure. It was not too long ago that developers only sold a total of 481 private homes
in the month of December 2009. The more cautious mood among homebuyers in May also extended to June. However
developers were still maintaining their marketing activities, especially for their recently-launched projects.

The spectre that haunts the financial market, and in turn, the residential property market, is the uncertainties over the
potential fall-out from the Euro-zone debt problems. Presently, the financial crisis in Europe is still unfolding and it is still
uncertain whether the potential fall-out could lead to another global recession in the coming months. But there are economists
who think that such a dire scenario is unlikely.

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An avalanche of land supply in 2H 2010
One of the reasons cited by some real estate market watchers for the slower sales in late May and early June is the huge
supply of land that the government plan to sell in the second half of 2010 (2H 2010). However the real effects of Government
Land Sale (GLS) programme would be felt in the medium term and usually would not have an immediate impact on home
sales and prices.

The surge in the residential property sales in the past 15 months were mostly in the mass-market segment. The top selling
developments were generally 99-year leasehold condominiums that were developed on sites that were sold by the Singapore
government. As the developers’ inventories of such mass market homes began to dwindle in the past year, they tried to outbid
each other in Government Land Sale (GLS) tenders to acquire new development sites.

As a result, the GLS activities in the first half of this year increased significantly. In the first five months of this year, developers
bought 8 private residential sites from the government, which is double the number of such sites acquired in 2009. In addition,
the government also sold 3 Executive Condominium (EC) sites to developers. About 2,900 private homes can be developed
from the 8 private residential sites and another 1,400 EC units can be constructed from the 3 EC land parcels.

In each of the land tender, the participation rate among developers was also very high. Before 2009, each GLS tender usually
drew less than 8 bidders. However, in the past 10 months, it was common for each GLS tender to attract more than 10 bidders.
The highest number was in May 2010, when 18 bids were received from developers who bid for the condominium site at Simei
Street 3.

The land price bids submitted by the developers in the past ten months were also relatively high, especially for development
sites that are located near MRT stations. Based on the developers’ bids for such attractive sites, the breakeven cost of the new
development on such land parcels would range between $800 and $900 psf, which can be higher than the resale prices of
other mass market condominiums in that vicinity. The result on home prices is that when the new development is launched, it
would increase the asking prices of sellers of existing properties in that area. Alternatively, if the property market were to cool
in the near future when these new projects are launched, the developers would strongly resist selling below the breakeven cost
and would rather extend their marketing period. Therefore the breakeven prices of these new launches would become the floor
price of new developments in that vicinity.

In response to the rising prices and strong demand in GLS tenders in the previous 10 months, the government announced one of the
most aggressive GLS programme for the second half of 2010. In 2H 2010, the government planned to sell 18 land parcels through the
Confirmed List, where development sites are tendered for sale based on a pre-determined schedule. In total, these 18 sites can yield about
8,150 private homes, which is more than the total number of residential units sold by developers in the first or second half of last year.

In addition, the government is offering another 27 sites on the Reserve List, which can potentially yield another 5,770 units.
However individual site on the Reserve List would only be released for sale if any developer were to indicate an interest to
purchase it. As there are such a large number of Confirmed List sites available for sale, it is unlikely that developers would
trigger more than four sites from the Reserve List for sale.

Primary market sales (units)

2,500

2,000

1,500

1,000

500

0
Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10

Primary market sales (units)

Source: URA, Nicholas Mak

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Outlook and Impact of the GLS Programme
The aggressive GLS programme for 2H 2010, especially the huge Confirmed List, surprised some market participants. It would
affect the market on several levels.

Firstly, it would be more challenging for the enbloc or collective sales of private developments sites to conclude successfully,
especially for large sites that cost more than $250 million. This is because developers would be spoilt for choice by the GLS
programme.

Secondly, some developers also find that GLS sites are less troublesome to acquire compared to collective sale sites because
some collective sales are subject to legal actions by owners who object to the sales. Furthermore, after acquiring GLS sites,
some developers may not have the appetite to bid aggressively in enbloc sales.

Thirdly, the large supply of new homes that can be developed from the GLS programme could also decelerate property price
growth or even contribute to price decline in the near future. As a result, developers may not be willing to pay the prices that
many private owners of enbloc sale properties are still demanding.

Furthermore, after acquiring GLS sites, some developers may not have the appetite or resources to bid aggressively in enbloc
sales. Therefore the new GLS programme would sap the demand for collective sales.

Lastly, some of the GLS sites in the new programme are located near to recently launched developments that were popular
with property investors. This could potentially dampen the price growth in that area and thus, reduce the speculative demand
for private homes in that locality.

On its own, the GLS programme would not be enough to cause property prices to fall if the sentiments among homebuyers
are still very robust. However, in the past year, the buying momentum in the local private property market is approaching an
unsustainable level. This could invite a price correction if there is a major global economic or financial crisis.

However, based on the healthy fundamentals of the present economic recovery in Singapore, private home prices could still
expand for the rest of this year, but at a slower pace. For the whole of 2010, the average capital values of private residential
properties could increase by 10% to 15%.

As long as the uncertainties persist in the financial markets, the Singapore private residential primary market is unlikely to
set another new record in 2010. Therefore, private developers could sell about 11,000 to 14,000 private homes for the whole
of 2010, which would still be higher than the 10-year annual average.

About the Contributor

Mr Nicholas Mak is a veteran in the real estate market with experience of more than 10 years in the
areas of research, consultancy and business development. He had headed the Consultancy & Research
Departments in Knight Frank and Chesterton International. Mr Mak is currently a real estate lecturer
in the Building and Environment Division of Ngee Ann Polytechnic. Besides conducting research, he
provides real estate advisory services to government statutory boards, real estate funds, developers and
financial institutions.

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Printed on 06/2010