IMF flags risk of significant decrease in real-estate prices

One of the risks the local financial sector could face is a significant fall in real-estate prices, said the IMF in its report on Singapore.

In the assessment, it noted that property prices are already past the 2008 peak and suggested that a 55 per cent fall in prices over three years is a risk.

While local property experts agreed that a correction is on the cards, they said a fall of that magnitude is highly unlikely.

Century 21 Singapore Chief Executive Ku Swee Yong said if prices started to fall very quickly, the Government would step in. “If there were two consecutive quarters of a 5 per cent drop, immediately, the alarm bells would start to ring.”

He noted that the Government had introduced initiatives to stabilise the property market and, if prices start to spiral downwards, some of the cooling measures brought in to curb price increases could be relaxed.

“Realistically, the only way prices could fall so fast is if there’s a global catastrophe.”

In a recent report, Goldman Sachs Global Investment Research noted that a fall in prices is definitely coming, but not at the rate flagged by the IMF.

“We believe home prices are on the precipice of a 10 to 15 per cent correction over the next three years, with rising interest rates the tipping point.”

But Mr Colin Tan, Head of Research and Consultancy at Suntec Real Estate Consultants, said the IMF risk-assessment numbers cannot be totally written off. “Prices have doubled since 2007, but income has not. I think, based on that fundamental, property prices should be 40 to 50 per cent lower than what they are now.”

To lower the impact of any major property-price correction, the IMF made a few suggestions, including encouraging over-extended households to reduce their leverage.

In its response to the report, the MAS noted that some measures have already been implemented to encourage borrowers to exercise financial prudence.