Declining property Prices

Data came below flash estimates.

URA released the property statistics for 1Q09 last Friday.

Data came out weaker than the flash estimates released earlier this month.

In the residential sector, the URA Property Price Index and Rental Index

plunged 14.1% and 8.5% QoQ to 139.9 and 139.4 respectively in 1Q09.

Primary transaction volume surged 520% to 2,596 units, driven by the

pent-up demand in the HDB upgraders' market. While subsale and resale

transaction volumes improved QoQ in 1Q09, these are still comparatively

weaker than the volumes achieved in 1Q-3Q 2008. Launched but unsold

inventories declined from 3,880 units (end 4Q08) to 3,333 units in 1Q09.

HDB resale prices fell marginally by 0.8% QoQ in 1Q09 and prices continued

to be supported by strong transaction volume which increased by 4.2%

QoQ to 6,446 resale transaction in 1Q09.

Rapid deterioration in the office sector. In the office sector, prices and
rents of office space fell 12% and 10.7% QoQ respectively in 1Q09. 603,855
sq ft of office space was completed in 1Q09 but occupied space declined
by 322,917 sq ft in 1Q09. As such, office vacancy rate increased from
8.8% (end 4Q08) to 10% (end 1Q09). On a more positive note, developers
continue to put on hold their plans to develop more office spaces as the
pipeline of office space declined by 472,535 sq ft in 1Q09. Retail sector
performed relatively better, with prices and rents declining by a smaller
4.2% and 3.3% QoQ respectively in 1Q09.

Too early to turn positive. While buying sentiment in the property market
has improved over the last 3 months, we believe that it is still too early to
turn positive on the property sector. Primary transaction volume fell to
more than a decade low of 4,264 units in 2008 and we believe that much of
the recent demand could have come from buyers who delayed their
purchases in 2008. In addition, there were precedents whereby strong
transaction volume in one quarter was just a 'blip' followed by decline in
volume and prices that continued for quarters. Sustainable recovery could
only come with improvements in economic data and employment rates. In
the office sector, there is still a potential supply of 13.9m sq ft of office
space in the pipeline but developers are likely to continue delaying plans
to build more office space and thus easing some pressure on the rising
office vacancy rate.