Home prices at record high, seen peaking

⋅ July 20, 2012 ⋅

Private home prices in Singapore have been on an uptrend post-global financial crisis, with the market having risen about 55 per cent since the middle of 2009 to hit a new high. Excess liquidity in Asian markets, a lacklustre United States economy and weakening European markets – as well as local factors such as low mortgage rates, higher immigration numbers, rising affluence and decreasing household sizes – have been driving demand for private residential properties in Singapore.

However, against a backdrop of increasing economic turmoil in the euro zone, slowing growth of Asian economies and increasing Government intervention, it appears that property prices here are beginning to peak.

Moderate rebound in Q2 2012

The Urban Redevelopment Authority’s (URA) flash estimate earlier this month of the private residential property price index for Q2 2012 reveals a moderate rebound from the previous quarter, where property prices dipped for the first time since Q2 2009.

The 0.4-per-cent increase from 206.0 in the previous quarter reflected a stabilising of the market. Prices were generally flatter for the third quarter running, recording no more than a 1.1 per cent difference in index points on a quarter-to-quarter basis. Comparatively, the price index was increasing at a sharper rate of about 2 to 10 per cent across all sub-markets before Q4 2010. Nonetheless, property prices have continued to scale new heights – touching a high of 206.8 index points.

In the individual sub-markets, the price index for the Core Central Region (CCR) recovered by 0.6 per cent following a dip of 0.6 per cent in the previous quarter. The price index for the Outside Central Region (OCR), which reflects the suburban mass market segment, increased at a slower pace of 0.4 per cent, compared to 1.1 per cent in the previous quarter, while the prices for the Rest of Central Region (RCR) remained unchanged. This indicates a rather flat trend across all the sub-markets.

Interestingly, the increase in the price index of the CCR sub-market narrowly outpaced that of the OCR in Q2 2012 – for the first time since Q4 2010. The OCR sub-market however remained robust and surpassed the RCR price index for the fifth consecutive quarter.

Mass market drives demand

The resilient OCR sub-market could probably be attributed to the implementation of the Additional Buyer’s Stamp Duties (ABSD) in December. Since its implementation, a sharp reduction in foreign demand for residential properties was observed, particularly that for investment-grade homes in the CCR and to a lesser extent the RCR sub-market.

URA data showed that the number of foreigners and companies that purchased uncompleted private residential units have decreased by about 34.7 per cent since Q4 2011. Moreover, cautious investor sentiment, as a consequence of global economic uncertainties, has dampened demand for such properties. The suburban mass market segment, which caters to the local population, remained largely unaffected. There was also a possibility that foreign demand spilled over to the more affordable OCR sub-market.

In Q1 2012, developers launched a large number of properties to meet this growing demand – a record 6,903 units, compared to 4,105 from the previous quarter. Of these, 6,526 properties were sold, with 80 per cent located within the OCR sub-market.

Prices likely to stay flat

The mid- to long-term outlook for global economies is generally optimistic. The International Monetary Fund forecasts the euro zone economies to recover by next year on the back of increased fiscal stability. Asian markets are anticipated to rebound due to the expansion of developing and emerging economies and the massive rebuilding of disaster-affected areas in Thailand, Japan and New Zealand.

In light of the positive international outlook, investor sentiment is likely to become less cautious and the demand for investment-grade residential properties here is likely to increase.

Population growth in Singapore is anticipated to slow with tougher immigration regulations and decreasing fertility rate. This will result in reduced demand for mass market properties in the mid to long term.

Moreover, a steady supply of residential properties in Singapore is expected in the near to mid-term. Major project launches expected in H2 2012 include Parc Olympia, Riversails and projects in Jalan Lempeng.

On the whole, we expect residential property prices in Singapore to remain largely flat with marginal and gradual growth, barring more Government intervention. The record supply in the pipeline could help alleviate any pent-up demand in the OCR sub-market, thereby preventing spikes in property prices. In the mid to long term, strengthening global economies would also boost investor sentiment, leading to a gradual recovery of CCR and RCR prices.

The authorities have said they will continue to monitor the residential market closely to ensure stability and sustainable growth. As such, based on the URA flash estimates for Q2 2012, we do not expect the imposition of more cooling measures yet.

By Alaric Yeo and Elaine Chow – analysts at HSR Research & Consultancy

Source : Today – 20 Jul 2012