Falling prices a 'healthy correction'

10.06.2015
Apartment lease rates fell 2.4% while sale prices decreased 1.5% in first 6 weeks of Q2.

Falling rents and prices may be a sign of strength, according to sector experts.

“The ongoing erosion of sale prices is a healthy correction,” said Jesse Downs, Managing Director of Phidar Advisory. "The more significant concern is the scale and nature of the upcoming, launched and announced projects."

Residential rents and prices continue to decline in the first six weeks of second quarter compared to first quarter 2015, reveals a new report. Apartment lease rates fell 2.4%, while sale prices decreased 1.5%, leading to a marginal tightening of yields to 7.2%, Phidar Advisory said in its mid-quarter, Q2, 2015, report.

“If we consider only under-construction and launched projects, the majority of the development pipeline is justified due to sufficient total demand,” said Downs, adding, “Overbuilding in the mid-high income segment likely will increase competition and lead to supply reordering.”

The consultancy stated that even a bullish scenario of 4.1% average GDP growth rate cannot absorb all potential supply expansion, including under construction, launched, announced and stalled projects. “The risk of an oversupply appears to be minimal, given the expected growth in population of just under 400,000 over this period. However the supply-demand equilibrium is likely to be maintained as the population grows in tandem with the rising number of completions,” it said.

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