Private home prices in Singapore may fall by another 10 percent from current levels in the next two years, revealed a Straits Times report citing BNP Paribas.
While prices have dropped 5.5 percent from their mid-2013 peak, the report said a “closer look at valuation metrics and underlying drivers” indicates that the market still has to correct before it can be said to have hit bottom.
BNP Paribas does not expect the government to relax the total debt servicing ratio (TDSR) cap considering its effectiveness in curbing property demand and supporting long-term financial stability. It stated that households in Singapore could see a further drop in their disposable income while local interest rates are expected to increase along with US rates.
It also expects the pace of increase in interest servicing to surpass that of income growth.
These are major constraints to the revival of property demand and, by extension, to the outlook for prices.
“Our central case is for a relatively orderly unwind. Maintenance of five percent per annum household income growth and a two-year period of correction (based on previous property cycles) mean that prices need to fall by 10 percent over the coming two years to lower the price-to-income ratio to 8.5 times,” the bank said.
BNP Paribas expects the continued drop in property prices to have direct consequences on consumption growth.
“Such a decline will push up loan-to-value ratios and force households to inject fresh capital into their mortgages when they attempt to refinance, further constraining private consumption in the coming years,” it noted.
Moreover, tougher immigration policies have had a detrimental effect on housing demand.
Tighter rules on immigration could see vacancy rates for private non-landed homes hit 10 percent by end-2015, placing more downward pressure on rents and prices.
The government can only reverse the downward trend in prices by restricting supply but “judging by its actions, however, the government seems intent on facilitating further acceleration in supply”, added the bank.
Romesh Navaratnarajah, Singapore Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg
