11 Jul 2013 09:05 by BY MINDY TAN | BT Invest

SENTIMENT in the real estate market continued to weaken in the second quarter.

The composite sentiment index, indicating overall market sentiment, stood at 4.5 for the quarter, down from 4.8 in Q1. A score under five means deteriorating market conditions and one above five, improving conditions.

The Real Estate Sentiment Index (RESI), compiled from a poll done among members of the Real Estate Developers’ Association of Singapore (Redas), measures current and future sentiments about real estate development and market conditions here.

The current sentiment index was 4.7 for Q2, down from 4.8 in the first; the future sentiment index fell to 4.4 from 4.8.

Prime residential sector sentiments charted the sharpest decline, with a current net balance of -35 per cent and a future net balance of -32 per cent. In Q1, the current net balance was -42 per cent and future net balance, -29 per cent.

The net balance is the difference between the proportion of respondents who were optimistic and those who were pessimistic.

On the suburban residential front, the current net balance remained positive at +8 per cent in Q2; the future net balance, however, fell significantly from -10 per cent in Q1 to -20 per cent in Q2.

Suburban retail was the best performing sector, with a current net balance of +14 per cent and a future net balance of +7 per cent in Q2.

A survey respondent said: “Moving forward, we believe the residential market will weaken (in price and rent) due to higher supply and less demand. As for retail, we believe demand is still strong due to the younger generation being more willing to spend to start their own business.”

The RESI, developed jointly by Redas and the National University of Singapore (NUS), is compiled each quarter through a structured questionnaire filled out by senior executives of Redas member firms.

Asked about the number of property launches, 55 per cent of developers said that they expected the number in Q2 to hold at the same level; in Q1, 24 per cent felt this way.

Just under three in 10 (29 per cent) expected moderately more launches in Q2, down from 51 per cent in Q1. Eight per cent said that they expected fewer new launches, just like for the previous quarter.

On pricing, 16 per cent said that they anticipated a moderate price increase, down from 24 per cent in Q1; 63 per cent said that they expected prices to hold.

On the other hand, 21 per cent expected moderately lower prices, up from 12 per cent in the last quarter.

More than 80 per cent of respondents said that local investments were shifting to overseas residential markets as a result of the introduction of the cooling measures (excluding the impact of the Total Debt Servicing Ratio implemented last month). They also noted a decline in foreign investments in the Singapore residential market.

Associate professor Sing Tien Foo of NUS’s Department of Real Estate said: “The developers’ future outlooks in both prime and suburban residential markets have been dampened by the last round of cooling measures in January. The suburban retail sector is the only bright spot in the next few months. These sentiments do not take into account measures introduced after this quarter.”

About 14 per cent of the developers expressed keen interest in Government Land Sales sites, up from 12 per cent in the previous quarter.

The proportion that expressed interest in en bloc sales fell to 53 per cent from 61 per cent.

Labour costs continued to be a major concern for 65 per cent of developers in Q2, up from 63 per cent in Q1.