Let’s take a look at how the high-end and landed market plays in the current market situation.

1.       High-end market vulnerable to external factors

It is a different ball game altogether for the high-end private home market as its fate is intertwined with the global financial market. As long as the current gloom in the global financial market is not lifted and real economic and productions are not resumed, many offices and factories everywhere in the world will continue to stay vacant resulting in a weaker demand for high-end homes.

There are a number of underlying factors affecting the demand/supply of the high-end home market which includes the following:

i.                     The United States factor, which is the most critical factor as the financial woes and the resulting credit crunch in the US are causing massive export slumps all over Asia, crippling growth and developments in poorer countries in general.

ii.                   The reluctant banks, which are frustrating home sellers, home buyers and the middlemen alike by being cautious in lending (and not lending).

iii.                  The Singapore economy, which does not appear to be bottoming out yet.

2.       Outflow of funds hurting high-end homes

Unlike the situation in the mass market where buyers buy homes for their own use,  the high-end home market is where buyers buy capital gain (the fastest gain could come from ‘flipping’ of options), or positive cash flows. As such, the economic factors weigh heavily on buying decisions. A couple of such economic factors include the following:

i.                     The arrival of Direct Foreign Investments (FDI), resulting in expatriate tenants looking for high-end comfort in homes

ii.                   Conspicuous spending, which hinges on the performance of the worldwide stock market.

In other words, buyers of high-end private homes are more vulnerable to external markets especially the global stock market, which remains highly volatile, to say the least.

Unfortunately, at the moment, the flow of money is going the other way. There are some conspicuous flight of capital back to the United States and Europe. The Royal Bank of Scotland (RBS) trying to offload its Asian assets is just one case in point (reference: 19 March 2009, Business Times).

With the two most critical factors missing from the high-end market, more supply in this segment can only depress prices further.

In fact, most of the soon-to-be-TOP projects are in the mid-and high-end market where the unit prices are above S$2,000 per sq ft. There could be more severe price corrections in the mid- to high-end segment in the next six months to a year.

3.       Landed home segment into hibernation mode

The landed home segment is one that will be the last to feel the heat of the market sell-out, which in my opinion, has not even begun.

In fact, the upcoming corporate reporting season may turn out to be the most telling season in many decades. Analysts expect overall earnings of corporate Singapore to fall by as much as 35 per cent over the last year – with almost all sectors experiencing a sharp drop in earnings. Corporate earnings may bottom out only in the second quarter of the year.

On the other hand, with the Singapore government artificially propping up the job market with the SPUR programme (where it foots the salary of employees going for re-training), and the Job Credit Scheme (where it picks up 12% of the payroll), many middle- to high-income earners (dubbed the PMETs which stands for Professionals, Managers, Executives and Technicians) are still clinging on the lifelines, which many reckon will not last long.

The sell-out in the landed home segment will happen suffer a delayed-action only when the recession has bottomed-out and when the government discontinues the financial hand-outs to private sector companies.

4.       Landed home prices act as a barometer of the larger economy

In fact, the cruelty of the current economic recession is that it is dragging down honest businesses as well – not just the speculative ones. The chief cause of the problems with the current down-turn is not corporate mismanagement, but rather the complete lack of demand by the richer countries for our domestic exports.

Moreover, through no fault of business consultancies, many companies diversify their assets and keep very little cash. What was considered the soundest financial advice to businesses for the past 10 years – ‘Keep the balance sheet light and leverage’, turns out to be the worst advice any business enterprise could get. Many businesses are going down because of the huge debts that they have chalked up after placing their cash in stocks and borrowing against the stocks for more cash. As it turns out, nobody is spared in this global financial tsunami.

The worst is definitely not over for the Singapore economy, and the worst certainly has not begun for the landed home market.

Prepared by Sam Gian, Independent Real Estate Sales Consultant. Article was first published in the Singapore Property Market Review, April 2009.