Singapore’s falling property prices will unlikely deter shoppers from spending as long as the decline in prices is slow and the job market remains stable, said experts and reported in the media.
“It will not be like the United States where we saw a large drop in consumption due to a drop in home prices during the recession,” stated National University of Singapore (NUS) academic Sumit Agarwal.
The connection between increasing home prices and higher spending is proven in the economic literature, but it might not be reflected in Singapore.
“The evidence shows that when households become wealthier, feel wealthier because of housing price appreciation, they would consume more of other goods,” said Associate Professor Sing Tien Foo of the NUS real estate department.
However, he noted it is less clear if the opposite is true. Thus, even if the property market continues to slow, consumption may not decline.
In 2014, property prices dropped 6.1 percent in the HDB resale market and four percent in the private market.
For this year, housing experts expect prices to fall by four to eight percent. Economists point that such a gradual decline in prices will unlikely leave a significant impact.
Professor Agarwal, the Low Tuck Kwong Professor in economics, finance and real estate, estimates a 10 percent drop in home prices may cause a two to three percent fall in consumption. This will have little effect on GDP, he said.
According to Barclays economist Leong Wai Ho, owners of multiple properties will more likely be affected since they have to service various mortgages amid slowing rental income. Nonetheless, he does not expect homeowners to reduce spending as long as the job market remains strong.
Muneerah Bee, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories email muneerah@propertyguru.com.sg
