Cooling measures may ease amid continued oversupply

Oversupply in Singapores residential market is expected to persist well into 2019 as the average net demand of 17,841 units over 2015-2019 remains below the average net supply of 40,990 units, revealed a Credit Suisse report.

This is expected to downward pressure on rents, occupancies and capital values, leading to price declines of between five and 10 percent by end-2016, with a relative preference for the high-end market segment.

Arguably, such an outcome could then lay the stage for an easing of cooling measures later in the year, it said.

Credit Suisse said it believes it's time for an easing of some of the cooling measures, considering that the "intent of these measures has been achieved," adding that "speculative activities have fallen, foreign demand has been curbed, and income growth has now outpaced home prices."

Against rising interest rates, a weakening labour market and persistent oversupply, we think a preemptive re-calibration of measures, rather than ex-post corrective action will better achieve a stable and sustainable property market.

According to the Swiss financial institution, re-calibration of stamp duty measures such as the Additional Buyer's Stamp Duty (ABSD) and Seller's Stamp Duty (SSD) will drive greater transaction volumes as well as increase liquidity within the secondary market.

An improvement in sentiment would be a critical outcome, with a recalibration of cooling measures being the proverbial "silver bullet"acting as a key rerating catalyst for developers.

Regardless of whether there will be a re-calibration of measures, Credit Suisse believes that bottom-up drivers play a far greater role for CapitaLand and City Developments Limited (CDL), considering the greater relevance of the non-Singapore residential segments for these developers.

It noted that CDL and CapitaLand are sufficiently diversified, with Singapore residential accounting for only 24 percent and five percent of their GAV estimates, respectively.

Assuming residential prices would fall a further 20 percent from our estimates, RNAV for CDL and CAPL will only decline five and two percent, respectively.

Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories emailnikki@propertyguru.com.sg

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