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Analyst: Private home prices may fall up to 10%

PropertyGuru

With Singapore half-way through the residential down-cycle, BNP Paribas expects private home prices to drop by another seven to 10 percent over the next two years, reported The Business Times.

Chong Kang-Ho, Research Head for Singapore, Malaysia and Indonesia as well as Asean Property Research, noted that this could be a slow bottoming-out process due in part to the resilience of developers when it comes to price cuts, owing to their strong holding power and higher land costs.

The implication of a slow bottoming-out process is that policy relaxation could be delayed, said Chong.

Latest flash estimates from the Urban Redevelopment Authority (URA) shows that private home prices dropped by 8.4 percent in Q4 2015 from the peak in Q3 2013.

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Chongs projection, on the other hand, implies a 15 to 20 percent fall from the 2013 peak. He also expects vacancies to increase to 10 percent by 2018.

Nonetheless, Chong sees a greater likelihood of stabilisation within the high-end segment, which witnessed price premium over the mass-market segment narrow. In fact, the price premium of luxury homes in Hong Kong versus luxury homes in Singapores districts 9 and 10 has widened since 2010.

If I'm an international investor, it is a better time to look at Singapore because prices have plunged so much, he said.

However, the rental market is expected to remain weak. Chong warned that lifting the property cooling measures in 2017 will not stem out the weakness unless the government relaxes immigration rules.

Even if the government relaxes immigration rules, we don't know if foreigners will come in now that the financial institutions are not hiring, he added.

With interest rates on the rise and net rental yield falling to two to three percent, Chong does not rule out negative carry over the coming quarters, or the cost of holding the property exceeding the return earned.

He believes that a policy reversal may take the form of an increased loan-to-value or tweaks to the mortgage servicing ratio (MSR), additional buyers stamp duty (ABSD) and sellers stamp duty (SSD).

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg

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