Home prices ‘to fall 20% by 2016 on restructuring, curbs’

SINGAPORE — Home prices in Singapore will decline at a steeper pace, falling by 20 per cent between this year and 2016, as economic restructuring as well as property and loan curbs continue to weigh on the housing market, Bank of America Merrill Lynch (BAML) said in its research report released yesterday.

“Overly tight population policies will imply the dominance of ageing-resident demographics over the influx of younger non-resident workforce. Delays in relaxing property measures would imply a greater negative impact from rising mortgage rates,” said BAML economist Chua Hak Bin.

Under the ongoing economic restructuring that the Government has said is a long-term undertaking, it will slow the flow of foreign workers into Singapore while rolling out incentives for companies to raise productivity.

“Restructuring and stricter foreign worker and immigration policies are lowering potential growth and impacting the property market,” Dr Chua said.

“Foreign labour growth is fast slowing, while permanent resident growth has turned negative … We believe total job creation is likely to slow to about 100,000 this year versus 136,000 in 2013,” he added.

Private home prices fell for a third straight quarter in the three months ended June as cooling measures such as the Additional Buyer’s Stamp Duty and loan restrictions such as the Total Debt Servicing Ratio (TDSR) framework curbed demand. From the beginning of the year, prices had fallen by 2.3 per cent by the end of the second quarter, the Urban Redevelopment Authority’s index showed in July.

On the public housing front, Housing and Development Board (HDB) resale prices shed 3 per cent by the end of the second quarter from the beginning of the year, hit by a reduction in the Mortgage Servicing Ratio cap and the maximum loan term, as well as a three-year wait for new permanent residents before they can enter the market.

Mr Ku Swee Yong, chief executive of property agency Century 21, said more downward pressure will be exerted on private residential prices from current vacancies and new supply. He noted that more than 21,000 private homes remained unoccupied in the second quarter, translating to a vacancy rate of 7.1 per cent, while another 29,000 new units will come on the market in the next two years.

Meanwhile, the decline in HDB resale prices will directly affect the mass market private housing segment, as the pool of upgraders becomes smaller.

Dr Chua said the fate of the property market largely depends on how the Government tweaks its policies, particularly on restructuring, immigration and foreign workers, as well as the timing of the relaxation of property measures.

“Singapore’s transition to a productivity-driven growth model is still ongoing and has produced mixed results so far … Labour productivity has not improved and not compensated for weaker foreign labour growth,” he added.

“We do not see the Government reversing course, but a pause may be in order. Scheduled foreign labour tightening is not over. Levies will be further raised and dependency ratio ceilings tightened next year. The intensity of such tightening will probably reach a crescendo in 2015, unless the Government chooses to further tighten in the Budget, to be announced in February.

“We think a pause in the restructuring is likely and in order, as companies, particularly small and medium enterprises, are having trouble adjusting to the speed of the tightening,” he said.

Dr Chua expects the Government to begin unwinding property measures only from the second half of next year, when the benchmark United States federal funds rate is forecast to begin to rise, with Singapore mortgage rates moving in tandem. He said the structural measures, such as the TDSR and loan tenure curbs, are not likely to be changed. However, cyclical measures such as loan-to-value limits and stamp duties can be calibrated based on market conditions.

“Residential property prices would have probably declined by more than 10 per cent by the middle of 2015 and highly leveraged households would have de-geared sufficiently,” he said.