Goldman Sachs Remain Negative on Singapore Developers

Bloomberg – 16 October 2008

Goldman Sachs Group Inc. said office and retail rents will decline amid the widening global financial crisis and an economic slowdown.

So-called prime office rents may drop 40 percent by 2010 from the peak in the second quarter of this year, while rates for retail space could fall 15 percent by 2010, Goldman analysts Leslie Yee and Paul Lian said in a report today. 

Singapore's economy slid into recession for the first time since 2002 as the widening financial crisis hurts global growth and demand for exports. The recession has already weighed on the island's home prices, which fell in the third quarter for the first time in more than four years.

``As we look for physical prices to be weak across all segments of Singapore property at least until end-2009, we remain negative on Singapore developers,'' the analysts wrote in the report. ``We recommend avoiding Singapore developers for the next six to nine months at least.''

Recession

Singapore's economy will probably grow 3 percent in 2008 from a year earlier, slower than an earlier estimate of as much as 5 percent, the trade ministry said on Oct. 10. Gross domestic product declined 0.5 percent last quarter from a year earlier, sending the economy into a recession.

The FTSE Straits Times Real Estate Index, a gauge of 34 Singapore property stocks, has dropped 56 percent this year, outpacing the 44 percent loss in the benchmark Straits Times Index, on concern a widening financial crisis will hurt expansion among financial companies. The world's largest banks and securities firms have already reported $647 billion of writedowns and credit losses, according to data tracked by Bloomberg.

Office rents peaked last quarter at about S$18.80 a square foot a month for so-called Grade A rents as vacancy climbed 1.2 percent, CB Richard Ellis Group Inc. said in an Oct. 2 report. Prime rents were also little changed at S$16.10, the broker said.

Rents may start falling amid increasing supply, Goldman Sachs said. The Marina Bay Financial Centre, which is being developed will be completed in 2010 and will be the city's biggest downtown property development in a decade.