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Friday, September 4, 2009

CapitaLand cautions about 30% gain in home prices

SINGAPORE: A 30% increase in Singapore home prices would raise concerns about the sustainability of the recovery in the island’s property market, according to CapitaLand Ltd chief executive officer Liew Mun Leong.

However, a gain of 5% to 15% in home prices was still reasonable given pent-up demand, a rally in stocks, interest rates and a recovery in Singapore’s economy, Liew said in an interview with Bloomberg on Sept 4 after presenting a project for 1,040 apartments in Singapore that starts selling next month.

Record home sales in July is still “normal behaviour,” he said.

Home sales jumped 52% in July to 2,767, a sign prices may rebound from four straight quarters of decline. Demand may not be sustained and the government is monitoring the market “closely” to ensure speculation doesn’t lead to a bubble, National Development Minister Mah Bow Tan had said July 29.

“The current market is being supported by some fundamentals like pent-up demand and affordability,” said Chua Yang Liang, head of Southeast Asia research at property consultant Jones Lang LaSalle Inc. “Beyond that, the current rate of growth could certainly cause asset inflation growth if it is not supported by a recovery in the local and global economy.”

An index of private home prices dropped 25% in the 12 months to June 30, according to Urban Redevelopment Authority data. Prices had gained 58% in the previous 17 quarters.

“If it jumps 30%, then I will be a little bit concerned about whether it is sensible,” Liew said, referring to home prices.

Speculation that collective sales or so-called en-bloc sales of existing apartment projects will recover may also be overly optimistic, Liew said.

The Laguna Park development in Singapore’s East Coast is being offered for S$1.2 billion (US$832 million), which would be the second-highest price ever for such a transaction, the Straits Times reported this week.

“It is relatively too soon to think about high prices now,” Liew said. “Given the cost of the land, given the construction cost and given the demand, it is too early for developers to confidently say the world economy has recovered and there will be buyers who can afford the price.”

CapitaLand, Southeast Asia’s biggest developer, paid a record S$1.3 billion for the Farrer Court site in 2007. It also paid about S$548 million for Gillman Heights in 2007. Gillman Heights will be used to build a 1,040-apartment development designed by Office for Metropolitan Architecture’s Ole Scheeren, one of the architects of the 54-storey CCTV building in Beijing, the developer said.

The developer reported its first quarterly loss in 5 ½ years in July amid writedowns on residential and investment properties.

By Bloomberg

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