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Property

Private home prices to fall 10 to 15%: OCBC

Drop caused by oversupply of homes, anticipated rise in US interest rates: Analysts

Published: 4:02 AM, December 5, 2014


SINGAPORE — Private residential property prices in the Republic will dip 10 to 15 per cent over 2015 and 2016, while developer sales next year are likely to stay muted at between 8,000 and 10,000 units, OCBC analysts Eli Lee and Wong Teck Ching forecast in a research report yesterday, citing the large oversupply of homes here and the anticipated interest rate hike by the United States Federal Reserve.

However, they said significant buyer demand will come into the market at the lower price points to limit the overall decline.

After nine quarters of sluggish sub-2 per cent price appreciation from the third quarter of 2011 to the third quarter of last year, the Urban Redevelopment Authority’s residential price index succumbed to the Total Debt Servicing Ratio (TDSR) framework introduced in June last year and dipped 3.9 per cent from the fourth quarter of last year to the third quarter of this year.

While prices dipped, the decline in sales was even more pronounced, with primary private home sales, excluding landed properties and Executive Condominiums (ECs), falling by half in the first 10 months of this year from the corresponding period a year earlier to about 6,800 units. The downtrend was broad-based, with all three segments — high-end, mid-tier and mass-market — suffering the impact of weakening buyer demand after the loan curbs kicked in, the analysts noted.

Including Housing and Development Board and Design, Build and Sell-Scheme flats and EC completions, the OCBC analysts anticipated that 50,300, 71,500 and 37,200 homes will be added to the physical supply next year, 2016 and 2017, respectively.

With a forecast average population growth of about 75,000 individuals a year from this year to 2020 and assuming a conservative three persons per household, this translates to an incremental demand of about 25,000 physical homes a year, which points to a clear oversupply situation ahead, the analysts said.

However, they added that the unsold pipeline of homes held by developers — which forms the primary supply — is not onerous at 33,000 units, being below the historical 10-year average of 41,000 units.

If units under consideration — to which developers can exercise flexibility in terms of the pace of launch and construction — are excluded, the situation appears less pessimistic. While developers are likely to ease prices to move inventory, the analysts do not foresee a fire-sale situation.

The analysts also noted that the authorities had stated that their goal was not to cause excessive price correction and that they have been scaling back the supply of land for residential units on the Confirmed List of the Government Land Sales programme. From the second half of 2010 to the first half of next year, the semi-annual supply on the Confirmed List has fallen from 8,135 to 3,020 homes.

The OCBC analysts expect the TDSR framework to be retained, while other measures, such as the sellers’ stamp duties and additional buyer’s stamp duties, appear to be more probable candidates for easing if the Government looks to reverse property curbs in the future.

However, this scenario of policy reversal is likely to occur only when residential price declines in the market approach a threshold of about 10 per cent, the analysts said, adding that this could occur in the second half of next year or after. As indicated by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam in late October, the authorities see “some distance to go in achieving a meaningful correction”, they noted.

The analysts were of the opinion that prices in the mass-market segment will be more at risk than those in the mid-tier and high-end. Before the TDSR was imposed, mass-market home sales made up the bulk of the volume, the analysts said, noting that 69 per cent of total sales over January 2012 to June last year came from this segment. However, the dominance of the mass-market segment has since waned, constituting 51 per cent of the total from July last year to now.

Rising costs of borrowing, with the US central bank expected to raise its interest rate target in the second half of next year, will probably keep buyers on the back foot, the analysts said. Singapore’s interest rates move broadly in line with those in the US.

Bloomberg News reported on Wednesday that Fed officials were signalling more confidence in the world’s largest economy that moves them nearer to raising rates and that they were stressing that the move would be linked to data.

Fed vice-chairman Stanley Fischer said the central bank was getting closer to replacing a vow to hold rates low for a considerable time, with guidance that tighter monetary policy will hinge on the economy’s performance.

The policy-setting Federal Open Market Committee will next meet on Dec 16 and 17 and officials are expected to debate retaining their “considerable time” pledge. If the US economy keeps improving, central bank officials will need to signal to investors that they will raise the key federal funds rate without sending bond yields higher and slowing growth. WITH AGENCIES