Sluggish Singapore says goodbye to boom times

Singapore has been going construction crazy with new futuristic condominiums replacing old, worn out apartments and a new financial district in the centre of the city is being built next to the city-state's first casino resort complex, to be operated by Las Vegas Sands .

There has been a 70 per cent increase in property prices over the last three years, which has fuelled the building boom and prime office rentals are now the highest in Asia, according to Colliers International.

But recently there have been increasing signs that property prices have peaked and the market looks set to hit hard times.

The sales of new homes have slowed significantly, with residential prices rising only 0.17 per cent in the second quarter and office rents suffering a similar fate.

Developers are reporting lower profits for the second quarter as the property market effectively cools. City Developments, Singapore's biggest private property group, last week 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 in October 2007.

There have been similar boom-bust property cycles in Singapore before owing to the peculiarities of the market. With nearly 90 per cent of Singaporeans living in state-subsidised apartments, the fortune of the private residential sector has rested on a rather limited customer base of well-off local and foreign investors.

It was only a few years ago that Singapore had one of the poorest performing property markets in the world. In 2005, the local government eased lending rules to encourage developers to replace old apartment blocks with more modern ones in an attempt to boost the sluggish construction sector.

 The resulting destruction of housing stock created an artificial shortage that drove up rents and triggered a wave of property speculation.

Predictions that more foreigners would invest in Singapore added to the optimism about the market's future.

But the global credit crunch and rising construction costs are now taking their toll, with a faltering economy and falling share prices undermining confidence.

Many are struggling to meet mortgage payments as rents begin to fall as a result of the increased supply of new apartment blocks, as the demand for property declines.

Citigroup estimates luxury property prices could fall 20-30 per cent from their peak as speculators unload properties. Office rents are also due for an adjustment. Companies are relocating from the expensive central business district to more affordable areas on the outskirts of the city.

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.

"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.