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2013: Big Fall in Property Prices Unlikely

IT would take an interest rate shock, poor GDP growth, or both, to bring down private property prices here noticeably over the next five years, a study said.

The Credit Suisse report noted that analysts are anticipating that prices will fall as a record supply of land comes on stream and as the US Federal Reserve tightens monetary policy.

US Liquidity

But it forecast that prices will rise by about 8 per cent by the end of 2017, based on the central scenario from its modelling. The report also said that not all of the government’s cooling measures have been effective in bringing down prices, even if they have dampened transactions temporarily.

“Contrary to the view of many, our analysis shows that prices will only correct marginally by 2017, if the government pushes out the supply of property as aggressively as it has over the last three years through its Government Land Sales programme,” said Michael Wan, the analyst at Credit Suisse behind the report.

If government land releases stay at the same “rapid pace” of around 16,000 units each year, prices will come down around one per cent by 2017, the report said, which indicates that an oversupply is unlikely.

“However, if this scenario coincides with a meaningful GDP or interest rate shock, prices would obviously fall much more,” the report said.

Credit Suisse defines a GDP shock as a scenario where output expands by a total of 5 per cent over the next five years, and assuming that loans and the Straits Times Index grow at the same pace.

Property prices will drop 16 per cent under this scenario.

Describing such a development as “unlikely” but “not impossible”, Credit Suisse said the bank had predicted that GDP will shrink by more than 9 per cent in the scenario of a full-blown eurozone break-up.

But if nominal output can grow by 7 per cent each year, with the same assumptions, prices will surge 23 per cent by 2017.

As for interest rates, Credit Suisse expects prices to fall a cumulative 14 per cent between 2013 and 2017 if the Singapore Interbank Offered Rate rises to 7 per cent in that time.

It said rates have not reached that level since the 1998 Asian financial crisis, and there has to be a very strong growth or a sharp pick-up in inflation in the US economy to see such a high rate returning, due to the close links between the US and Singapore economies.

Outlook for 2012

Singapore’s property market has been on a bull run since the collapse of Lehman Brothers in 2008. Just as figures shows that Singaporeans are still rushing in to invest in properties, “To join them or to stay out and miss the boat. What can we expect moving forward?” are the questions in most of our minds right now.

As we move into 2012, we glance into the past to predict what to expect in the year ahead. Looking at the key trends in Singapore’s property market for 2011, we noted the following:

Trends in 2011

1) HDB prices rose faster than private property prices

2) URA’s private residential property price index peaked at 206.2 points, with especially buyers in the luxury segment holding back on their purchases

3) Investors are going into industrial and commercial properties.

I was talking to one of my buyers at Eon showflat the other day and he was asking me about my opinion on the property market in Singapore. “Do you think the property prices will go down this time? If so, how much will the prices fall?”

True. With worrying global economic situations especially with the troubles in Europe, combined with the dampening effect of the government measures and the large upcoming supply of completed private and public housing, it does seem like the RESALE market will be going in for a dip. However, with that said, if you’re expecting prices to fall significantly, don’t hold your breath as it may not happen. The supportive forces includes:

1) low interest rates,

2) high occupancy rates for mass-market properties at 97.5% (Citi’s property analyst – Wendy Koh)

3) future population growth, and

4) expected continued economic growth in Singapore and our near full employment (2%).

How much will the prices fall?


New launches are the next opportunities that investors (who are cash rich) looking into right now. With normal progressive payments, or even Interest Absorption Schemes (for certain projects with tie-ups with certain banks, e.g. Eon with OCBC), the investors are able to wait-and-see approach with just 20% downpayment and allow their property price appreciate with the upcoming developments within the locality.

In addition, prices for the new launches are expected to increase or at least not fall, as the developers had bought the land at a high price. With construction costs on the rise and increasing workers’ levies, we’re expecting the new launches to hit the sky and break new heights.

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