RESIDENTIAL

Improved optimism as market bottoms out

The Singapore economy grew at a slower rate of 1.1% in 2003 after a 2.2% growth in 2002. Economic growth was affected mainly by the SARS outbreak, the Iraq war and a weak global economy.

However, the outlook is more positive going forward. The economic recovery in the US and Japan look promising and China continues to see robust growth. The increase in demand from these economies will enhance trade and benefit the regional economies. The global electronics industry, which has recovered last year, is also expected to do better in 2004. On the back of these positive developments, official growth forecast for 2004 has been raised to 3.5 - 5.5%.

Amid economic uncertainties, compounded by the Iraq war, developers managed to sell only 427 units in the first quarter of 2003, compared to the quarterly average of about 1,900 units during the period from 1993 to 2002. The resurgence of home buying activity in the second quarter of 2003 was short-lived when changes to the Central Provident Fund (CPF) system were announced. The key changes included cutting down on the employer’s CPF contribution rates and the CPF salary ceiling, raising the CPF minimum sum and tightening the CPF withdrawal rules.

For the whole of 2003, developers sold a total of 5,156 units which was lower than the 9,485 units sold in 2002.

Private home prices also fell by 2% as compared to the 1.8% drop for 2002. For 2004, property consultants expect sales to improve to 6,000 - 7,000 units and prices to rise by about 5 - 10%. Although Singapore’s economic prospects have improved towards the end of 2003, the government recognises that it will take time for the property market to recover. It has decided to extend the suspension of the land sales programme to the first half of 2004.

Another key change during the year was a revision to the development baseline definition. Previously, privately-held sites with a historical baseline plot ratio higher than that allowed under the 2003 Master Plan (MP 03) need not pay development charge (DC) for any redevelopment up to the historical baseline plot ratio. However, with the change in policy, for any historical baseline plot ratio higher than that allowed under MP 03, the latter plot ratio will apply as the baseline. Hence, DC will be payable for any plot ratio increase beyond MP 03. To allow affected land owners to adjust to the new ruling before it kicks in, the revised definition will only take effect from 1 January 2008.