Why are property prices still elevated?

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Developers have strong holding power.

Cooling measures have gripped Singapore’s property market for the past two years, and yet prices have still not dropped enough to make policymakers ease the measures.

Analysts note that private residential prices remain relatively elevated because of a number of factors, but particularly because developers have solid balance sheets and strong holding power after locking in robust sales over 2010 to 2013.

A report by DBS said that this gives developers room to sit out the current down cycle without aggressively cutting prices.

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“Strong developer balance sheets and low interest rates have kept price decline more gradual. We believe that this is due to (i) developers’ strong balance sheets and holding power after locking in strong sales over 2010-2013; and (ii) still low borrowing rates, which allow investors and homeowners to prefer holding on to their units and not sell, given low opportunity costs,” said DBS.

Meanwhile, CBRE said that developers are not prepared to cut prices because projects currently in the market involve high land and construction costs.

“Developers preferred to pay a tax to extend the time to sell a project over cutting prices,” CBRE said.

CBRE expects the residential market to stay muted this year, as the rising interest rate environment and slowing economy will continue to exert pressure on prices.

Source : http://sbr.com.sg/residential-property/in-focus/why-are-property-prices-still-elevated

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