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Downtrend in private home prices picks up momentum

Even so, property players say it is not sufficient for the authorities to consider rolling back cooling measures
Friday, October 2, 2015 - 05:50
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The drop in private home prices gathered momentum in the third quarter.

Singapore

THE drop in private home prices gathered momentum in the third quarter. The Urban Redevelopment Authority's latest flash estimates show that its overall private home price index is down 1.3 per cent from the second quarter. This follows a 0.9 per cent fall in Q2 and marks the biggest quarterly drop since the index peaked in Q3 2013.

Year on year, the index is down 4.2 per cent. It has fallen almost 8 per cent over eight straight quarters since its recent high.

JLL national director Ong Teck Hui said that the sharper quarter-on-quarter decline may suggest that sellers are starting to blink first - after a long-drawn battle. "For those who need to sell, they would have realised by now that prices are only going to fall further and easing of cooling measures is not going to happen anytime soon."

URA's flash estimates released on Thursday showed that prices of non-landed private homes fell in all three geographical regions in Q3, led by a 1.6 per cent drop for the suburbs or Outside Central Region (OCR). Property consultants said that this was primarily caused by the launch of High Park Residences in Fernvale Road - with high volumes recorded at an average price of sub-S$1,000 per square foot. Without the cooling measures, they might have been sold at S$1,100 psf, which suggests a price drop of about 10 per cent.

The 1.6 per cent drop is steeper than the 1.1 per cent dip in Q2.

In the city-fringe or Rest of Central Region (RCR), the fall was 1.5 per cent, again steeper than the 0.6 per cent dip in Q2. In Core Central Region (CCR), prices slipped 1.3 per cent, after retreating 0.6 per cent in Q2.

While sales of new projects are thought to have driven price falls in the OCR, the price drop in CCR is likely to have been led by secondary market transactions, say analysts.

On the million-dollar question, whether the 8 per cent drop thus far in the URA benchmark index would be enough for the authorities to consider rolling back or at least tweaking some of the property cooling measures, Knight Frank executive director of residential services Tay Kah Poh said: "I don't think the policymakers will take this drop as sufficient . . ."

However, the developers' argument that the URA index masks many instances where prices have fallen more than the index has some merit, he argued. "There may be a case to look at a higher degree of granularity in price declines in the market that may not be captured fully in the index, which is an aggregation of the whole market - especially since the risk of over-leveraging has been substantially addresssed by the TDSR (total debt servicing ratio)."

Industry observers told BT that the authorities are unlikely to begin tweaking the property dampening measures given the looming big-picture risks - including the economic slowdown in China and the impending rise in interest rates by the US Fed.

Said one seasoned market player: "Removing any cooling measures at this juncture may offer only temporary relief for the property market. If the Singapore economy worsens and goes into a tailspin - and there is an increase in households falling behind in mortgage payments, for instance - it would be more timely to remove the cooling measures then as part of a comprehensive package to stimulate the whole economy.

"If the government were to start adjusting the measures now, it may be seen as helping the developers . . ."

CBRE Research head of Singapore and South East Asia Desmond Sim acknowledged that the rate of price descent has been gentle compared with the previous two corrections that were impacted by global events.

Agreeing, R'ST Research director Ong Kah Seng said: "The 8 per cent drop is considered marginal in magnitude and might not have put prices better in terms of buyers' affordability and expectations".

In contrast, URA's index fell a total of 24.9 per cent over four quarters (Q3 2008 to Q2 2009) during the global financial crisis and 20 per cent from Q3 2000 to Q1 2004 (the dotcom bubble burst, 911 and Sars episode). The index retreated 44.9 per cent between Q3 1996 and Q4 1998 (the introduction of the May 1996 property cooling measures, followed by the Asian financial crisis).

Amid the current cycle's soft landing, buyers' interest remains generally sluggish, said R'ST's Mr Ong. "Only projects and properties with strong selling points are quickly snapped up - if they are offered at attractive prices. Properties with mediocre selling points that do not have significantly lower prices continue to face difficulty garnering buying interest."

He expects the OCR to take a bigger price hit than the CCR and RCR in Q4 2015 and Q1 2016 - due to substantial completions of new private homes in the suburbs, which will intensify competition on both the leasing and resale fronts.

OrangeTee.com senior manager of research and consultancy Wong Xian Yang said: "Going forward, the market is expected to remain soft, in view of uncertainties in the global economy; softness in the rental market due to tight foreign labour policies and high completions of new homes; cooling measures; and rising interest rates."

Mr Sim of CBRE expects price corrections to continue at a moderate pace, as long as the current slew of cooling measures are still in place.

Based on the Q3 flash estimates, URA's overall private home price index has retreated 3.2 per cent since Q4 last year. Nicholas Mak, executive director at SLP International, estimates the full-year decline to be 3.8 per cent to 4.5 per cent.

JLL's Mr Ong said: "There is certainly a risk of sharper price declines in the future, especially if economc conditions deteriorate, which could exacerbate pressured selling."

Back in May 1996, he recalls, following the implementation of the anti-speculation measures, prices did start to ease; however, when the Asian financial crisis struck in 1997, prices quickly spiralled downwards.

"This time around, we can also expect the current economic slowdown to have an impact on residential price declines - depending on its magnitude and duration."

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