Home prices unlikely to fall, due to high demand

I refer to the report “Resale prices of non-landed private homes hit 16-month low” (May 13).

The expectation by one of the analysts, that the residential property price index would fall by 5 per cent to 10 per cent this year, appears to be an overestimation. Ultimately, a supply and demand imbalance will influence property prices and rentals.

The Urban Redevelopment Authority estimated the number of homes being completed will be 20,000 this year and 24,000 next year.

Despite this record number of homes flooding the market, the potential demand would outstrip supply and counter the effect of the cooling and loan curb measures. Four main areas of real demand will support both the resale and rental market.

First, new permanent residents and citizens are added annually to the population and they are able to absorb the influx of completed homes.

Second, the OCBC Investment Research showed that, when interest rates fell from 2.2 per cent in 2008 to 0.56 per cent in 2012, households earning S$8,700 a month could have afforded a S$1 million condominium. Only 10 per cent of these 447,000 households would match the supply of homes this year and next.

Third, there has been pent-up demand due to rapid population growth and undersupply from 2005 to 2010, which has been largely unfulfilled.

Fourth, there are many singles in the 30 to 39 age group, enough of whom are diploma and degree holders who can take up all the shoebox units, and then some, from the mass condominium market.

The other key driving factors are interest rates, affordability, rental yield, unemployment rate and liquidity. These are sound fundamentals, at least for the near future.

With a burgeoning demand, any further price fall this year is unlikely, as this would draw buyers back to the market.