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Thread: Analysts see 'balanced fundamentals' in Singapore's private property market

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    Default Analysts see 'balanced fundamentals' in Singapore's private property market

    Analysts see 'balanced fundamentals' in Singapore's private property market

    Real demand driving the market; however there are other factors at play behind the buoyant demand

    Tue, Oct 13, 2020

    Rachel Mui

    https://www.businesstimes.com.sg/rea...roperty-market

    PRIVATE home prices in Singapore have increased just slightly over the last two years and the city-state is not at risk of a housing bubble, a recent report by UBS showed. Industry watchers agree that Singapore's private residential market has "balanced fundamentals" - as the report suggests - and note that there are other factors besides low interest rates that may have supported the resilient demand seen in recent months.

    Singapore's score in the annual UBS Global Real Estate Bubble Index score remains virtually unchanged from that of last year, indicating that the market is in "fair-valued territory", UBS said in its latest report.

    "Overall, the market still looks balanced in terms of demand and supply over the medium term. The number of households jumped from the previous year, and the vacancy rate has been declining."

    Eugene Lim, ERA Realty Network's key executive officer, told The Business Times that the current slew of cooling measures have stabilised property prices and prevented runaway property price hikes fuelled by excessive buying, speculation or foreign demand. These measures include seller's stamp duty, additional buyer's stamp duty, total debt servicing ratio and loan-to-value ratio.

    "What's driving the market today is real demand. And as we have seen in recent months, steady and resilient demand have led to property prices inching upwards," added Mr Lim.

    Private home prices are now 2.7 per cent above the most recent peak in Q3 2018 and just 0.5 per cent below the all-time peak of Q3 2013, ERA's Mr Lim noted.

    But Knight Frank noted recently that Singapore's 1.2 per cent rise in private residential property prices in the second quarter this year, from a year ago, is lower when compared with the average annual price growth of 3.4 per cent across 150 global cities.

    Ong Teck Hui, JLL Singapore's senior director of research and consultancy, told BT the substantial easing of oversupply, coupled with an expected healthy sales take-up for this year, would place the market on a more positive footing in spite of the recession. Demand for new homes has rebounded after the "circuit-breaker" period in Q2 and may end the year close to the 9,912 new units sold in 2019, Mr Ong said.

    While there are no signs of overheating in Singapore's housing market according to the UBS report, the Republic did register a relatively high price-to-rent (PR) ratio among 25 major cities included in the index.

    A PR ratio signals how expensive owner-occupied homes are relative to rental apartments; the higher the ratios, the more expensive buying becomes. Munich, Hong Kong and Zurich have the highest PR ratios, followed by Paris and Singapore.

    "Extremely high multiples indicate an undue dependence of housing prices on low interest rates . . . House prices in all these cities are vulnerable to a sharp correction should interest rates eventually rise," UBS said.

    But Tricia Song, head of research at Colliers International, disagreed that there could be a "sharp correction" if interest rates were to rise, even as borrowing costs now are low.

    She said that property prices are mainly driven by economic growth or income growth, tempered by supply and government policies. In addition, most purchasers are owner-occupiers or those looking at capital appreciation, hence prices are less sensitive to yield spreads, Ms Song added.

    JLL's Mr Ong concurred that there might be other factors at play behind the buoyant demand and limited price downside. He noted that, between 2010 and 2019, the growth in median household income outpaced the "gentle" increase in private property prices due to the implementation of cooling measures.

    He added that another key reason for the limited price downside expected in the current downturn is the absence of a strong run-up in prices in the years preceding 2020, thereby avoiding an asset bubble.

    From 2014 to 2019, private home prices had risen only 4.5 per cent based on URA data, before Covid-19 struck in 2020, Mr Ong said. Conversely, in the five years preceding the Asian Financial Crisis correction, residential prices had surged 184 per cent, while a 56 per cent increase was recorded in the five years before the Global Financial Crisis correction.

    Likewise, ERA's Mr Lim noted that there are other factors buttressing real estate demand. For example, there are also around 50,000 HDB flats reaching five-year minimum occupation period in 2020 and 2021, which represents a huge upgrader base, Mr Lim said. To add, the market is still flush with liquidity, with some S$20 billion of en bloc money from 2016 to 2018 progressively finding its way back to the private property market, Mr Lim said.

    On the supply side, the number of unsold units remains significantly higher than it was in 2017 at the start of the most recent price uptick, UBS noted. It added that the medium-term development pipeline is still well-stocked.

    UBS expects the vacancy rate to stabilise at current levels and for home prices to soften in the near term.

    Ms Song from Colliersnoted that with the recent URA flash estimates showing private home prices are up 0.8 per cent in Q3 from the previous quarter, she now expects prices may end flat or just marginally down for the year.
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