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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

STILL NO BOTTOM IN SIGHT

Singapore's real-estate slump may get worse

By Andrea Hamilton / SINGAPORE


ON MAY 6, THE Singapore government closed a tender for a prime piece of business-district land. One of the last commercial locations available in the downtown area, the 11.1-hectare plot near Marina Bay was said to be the best site to go on the market in years. Bids were expected to range from $428 million to $612 million. Instead, not a single punter made an offer.

The failed tender showed just how badly investor confidence has been shaken by the regional crisis swirling around Singapore. What scared everybody away? Tight bank financing and a reluctance to tie up the estimated $1 billion needed for development. The Lion City's property market, already in a prolonged slump, was battered further when the turmoil hit in the second half of last year. "For anyone to go in, they would have to be a very strong company," says Joseph Lim of Nomura Securities. "At this point, no Singapore company is able to. It doesn't make sense to plow too many resources into such a project." Some argue that no bid was a better result than if a low offer had been accepted. "A low bid would have been damaging to office values," says Angus Forsyth, associate director with First Pacific Davies. "This way the value of offices in Raffles Place [heart of the central business district] and surroundings will be maintained. It's very difficult to value anything, since there have been no transactions [recently]. We're in limbo now."

A much bigger question mark hangs over the Lion City's residential market. Private housing prices dropped 9.3% in the first quarter of 1998. That was the seventh - and largest - consecutive quarterly drop since the market peaked in mid-1996, adding up to a 24.2% decline. That exceeds the 23.6% slide during the first seven quarters of the last major property slump in the mid-1980s. Since early this year, new projects have been launched at heavy discounts or postponed. Kevin Gin, research chief at Dresdner Kleinwort Benson, expects another 10% to 15% drop in residential prices, with a similar decline on the commercial side. He estimates there is an excess of between 25,000 and 35,000 residential units in the market. "The macro variables are driving it: signs of decline in consumer sentiment, job security, and future cash flow. In these conditions people are hesitant to take on extra [financial] commitments." The residential market will not recover until 2000 at the earliest, says Gin.

That's bad news for Caroline Yong. Residential property manager for First Pacific Davies, she used to broker up to six deals a month, but now is lucky if she closes two. Yong says Indonesian investors are selling. "Their asking prices are much lower than a Singaporean would ask. These are second homes they are getting rid of because of the collapse of the rupiah. They need the cash."

While the residential rental market is also wobbly, the commercial leasing segment is perhaps the only bright spot in the entire property picture. "Tenants can get fixed into a space at low rentals so a lot of companies are taking advantage of that," says Forsyth. Landlords are throwing in sweeteners, such as rent-free periods, rebates and long lease tenures. "There may not be an enormous amount of supply [of commercial units] coming on line this year so we could see a firming of the rental market in the fourth quarter," Forsyth reckons.

Ong Choon Fah, research director for Edmund Tie & Co., wonders about Singapore's vulnerability to instability in neighboring Indonesia. "For our market to move ahead, the broader picture has to stabilize. Singapore has done relatively well compared to the region, but we are not immune. We're not out of the woods yet." Predicting how the market will play out over the near term is impossible, she says. "We don't even know what will happen next week." But over the long term, Ong is optimistic. "People are not writing Singapore off. Certainly the larger local companies are taking the longer view." In crisis-hit Asia these days, taking the longer view is about all anybody can do.


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