Likely fall in home prices a lure for bargain hunters

SINGAPORE — Housing prices are set to come under considerable pressure this year as consumers concerned about a subdued economic environment and rising interest rates tighten their purse strings. But with analysts projecting a fourth consecutive year of price decline since the Total Debt Servicing Ratio (TDSR) framework was implemented in 2013, bargain hunters on the scout for cheap properties in good locations could help push transaction volume higher.

Analysts TODAY spoke to are projecting prices for private residential properties to decline by about 3 per cent this year. The decline — similar to the estimated fall in 2016 but far shy of the 60 per cent surge between 2009 and 2013’s peak — could draw potential buyers and push transactions higher for the third consecutive year.

Analysts are projecting that private home sales could range between 17,000 and 19,000 units this year, surpassing 2016’s projected three-year high of 15,000 to 17,000 units.

But even at the high end of the estimate, 2017’s home sales would still be only about half the nearly 38,000 units sold in 2012.

“The fundamentals of the residential market have not improved, with GDP growth slowing in the coming quarters, a potential interest rate hike and increased volatility in the financial market,” said Ms Christine Li, research director of Cushman & Wakefield. “(However), transaction volume could still inch up by a single digit from 2016 levels … barring external shocks,” she added.

Official data this week showed that Singapore’s economy grew 1.8 per cent last year, its weakest performance since 2009, when gross domestic product (GDP) contracted 0.6 per cent.

The Government has also indicated that it does not expect the economy to pick up significantly this year, with Prime Minister Lee Hsien Loong speaking of “difficult and uncertain times” in his New Year message.

At the same time, the United States Federal Reserve last month also raised its key rates target by 25 basis points to between 0.5 and 0.75 per cent, and projected another three rate hikes this year. With interest rates in Singapore expected to rise in tandem with US interest rates, repayments of loans will become more expensive, potentially affecting buying sentiment.

SUBURBAN HOMES THE MOST RESILIENT

Pending final real estate statistics by the Urban Redevelopment Authority (URA) for 2016 due later this month, developers here sold 5,656 private homes between January and September, while the resale market saw 6,337 units change hands. These are higher than the 5,837 and 5,081 transactions recorded in the same period in 2015.

The Outside Central Region (OCR), or suburbs, looks set to dominate sales given the larger available supply and more affordable prices. Several developments that are expected to be launched for sale this year are situated in this area, including The Clement Canopy at Clementi Avenue 1, as well as projects on Siglap Road and New Upper Changi Road.

The Rest of Central Region (RCR) and Core Central Region (CCR), or city fringes and city centre, are likely to see a slower pick-up as these segments are more affected by the cooling measures given their high price quantum. Nevertheless, there are several launches worth watching here, such as the one to be built in Martin Place in River Valley and Park Place Residences at Paya Lebar Quarter (PLQ).

Mr Richard Paine, managing director of PLQ by Lendlease, said: “With the property cooling measures likely to remain, and a slowing economy anticipated for 2017, we can expect a relatively soft property market. However, residential sentiments are slowly improving … We are optimistic that buyer interest will continue to improve … as price expectations between buyers and sellers stabilise.”

Analysts agreed that projects that are well-located and priced attractively will continue to draw buyers. This could help to lower unsold inventories, which has fallen to 22,500 as of the third quarter of last year, from 32,200 units three years ago, noted Mr Ong Teck Hui, JLL Singapore’s national director for research and consultancy.

But Dr Lee Nai Jia, South-east Asia research head at Edmund Tie & Company, said the stock of unsold private homes is likely to remain at current levels due to an increase in launched projects as developers trigger more sites on the Government Land Sales’ Reserve List. “Additionally, there is great interest in en bloc sites. Hence, the increase in launched projects will offset the decline in unsold units in the inventory,” he said.

With a high amount of supply coming into the market, vacancy rates of private homes here look set to climb further. Mr Wong Xian Yang, head of research and consultancy at OrangeTee, said vacancy rates for non-landed private homes may hit 11 to 13 per cent in 2017 from the 10 per cent at the end of 2016’s third quarter.

Adding to the woes of rising vacancy rates is a subdued rental market, with supply likely to continue to outweigh demand in the coming year. URA statistics showed that overall rents have fallen by 10.7 per cent in the third quarter of last year from the peak in the third quarter of 2013.

“Vacancy rates are poised to rise as more supply comes into the market. Though the number of incoming completions would have peaked in 2016, the number of expected completions is still above the 10-year average annual completions, from 2006 to 2015, of 11,890 units for landed and non-landed,” Mr Wong said.

“The effects of the high number of completions in recent years are expected to persist. Demand remains capped as the economic outlook remains weak and foreign labour continues to be restrained,” he added.

KEEPING THE EQUILIBRIUM

Despite the soft outlook for the private housing market, analysts said that cooling measures and loan curbs still have a role to play in keeping the market at an equilibrium state. This is especially so when buying demand has improved despite risks in the economy.

The Monetary Authority of Singapore (MAS) last year refined the TDSR framework to allow all homeowners to be exempted from meeting the 60 per cent threshold when refinancing mortgages of the home they reside in, regardless of when the property was purchased. Previously, only owner-occupied homes bought before the introduction of TDSR were exempted from meeting the threshold.

“The tweaks to the TDSR are merely a fine-tuning by the MAS. The Government, in several announcements last year, has reiterated that it is premature to relax the cooling measures and we can expect that as the status quo in 2017, especially with improving demand despite economic risks,” said Mr Ong.

Ms Li said: “My take is that tweaking of the property curbs is currently not high on priority to the policymakers … Although the macroeconomic data doesn’t seem to support the fundamentals of the housing market, there is a risk of capital inflows due to more severe property curbs in Hong Kong and China.

“Should more foreign demand be diverted to Singapore, the Government might even step up efforts to cool the market. However, at this juncture, such punitive measures are not likely to be implemented.”