Developers’ sentiment appears to have weakened further in the third quarter, following the introduction of the Total Debt Servicing Ratio (TDSR) framework in June.
The Real Estate Sentiment Index, which reflects overall market sentiment through the Composite Sentiment Index, was 3.9 in the third quarter; this was down from 4.5 in the second quarter, which was itself lower than the 4.8 reading of the first quarter.
The Future Sentiment Index also fell to 3.9 from 4.4 in the second quarter.
In this index developed by the Real Estate Developers’ Association of Singapore (Redas) and the National University of Singapore, a score under five is a flag for deteriorating market conditions.
The quarterly index is compiled from responses to a questionnaire sent to Redas members – developers, consultants, financial institutions and service providers.
The report accompanying the latest index said: “This weakened overall sentiment signals possible uncertainty in the market in the next six months.”
This wilting of sentiment is a result of the government’s introduction of the TDSR framework, designed to encourage financial prudence among borrowers. Under it, financial institutions must consider borrowers’ outstanding debt obligations and ensure, for instance, that their monthly debt obligations stay within 60 per cent of their monthly income.
The composite index aside, the individual property sectors were also hit, with the residential sector taking it hardest.
Prime residential sector sentiment suffered with a net balance of -46 per cent; future net balance was -38 per cent. In Q2, the corresponding figures were -35 per cent and -32 per cent.
The net balance is the difference between the proportion of respondents who were optimistic and those who were pessimistic.
The suburban residential property segment went into negative territory, recording -30 per cent in current net balance (from +8 per cent in Q2) and -40 per cent in future net balance (-20 per cent in Q2).
The office and the hotel/serviced apartment sectors rode a wave of confidence. The office sector recorded a current net balance of +19 per cent and a future net balance of +31 per cent.
The hotel/serviced apartment sector had a current net balance of +10 per cent, and a future net balance of +20 per cent.
A survey respondent attributed this to the upbeat outlook for the hotel industry, given a vigorous tourism industry.
A total of 42 per cent of the respondents, down from 55 per cent in Q2, expect the number of residential property launches to hold steady, though 65 per cent, up from 21 per cent in Q2, expect moderately lower unit prices in the near term.
More than 55 per cent of the respondents believe that the TDSR framework will impose a drag on residential property sales and raise the number of unsold residential units.
Source: Business Times –24 October 2013
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