Private home prices to rise 10% by end-2018: Morgan Stanley

Singapore

THE recovery in private home prices has started in the third quarter, Morgan Stanley believes. While the Urban Redevelopment Authority (URA) only releases its third-quarter flash estimates in October, analyst Wilson Ng in his latest projections expects Singapore home prices to rise 2 per cent this year, and another 8 per cent in 2018 .

This compares to his earlier forecast of prices falling 4 per cent and rising 5 per cent, respectively. Morgan Stanley's new projection is among the most bullish of forecasts in the research circle.

OCBC Investment Research, for instance, only expects prices to bottom out in 2018. It has forecast 2017 prices to range between a 5 per cent decline and a flat price trend.

DBS also expects prices to fall 2 per cent in 2017, before rising 3 per cent in 2018, and another 3 per cent in 2019. Most property consultants are also predicting a price decline of 0-2 per cent this year.

Morgan Stanley's Mr Ng had already surprised the market in April when he forecast that Singapore's property prices will double by 2030. He is holding on to his earlier forecast, and in fact has brought forward his timeline of the inflexion point, believing that property prices will begin rising in the third quarter of this year, versus his previous forecast of early 2018.

Part of this is precipitated by a spate of en-bloc deals that have started flooding the market from May this year. With seven collective sale projects already awarded, some 1,500 home owners will be displaced, each averaging a newfound wealth of about S$1.8 million, he estimated.

"With leverage, this adds up to S$13 billion of potential capital inflows that could find their way back into the property market, more than the entire value of developer sales in 2016. More en-bloc deals could follow, with 50-60 more currently under discussion," he added, citing a Business Times report.

There is also other evidence for an imminent price recovery, for example:

Mr Ng had noticed that URA's second-quarter statistics showed a milder decrease in private home prices of 0.1 per cent, compared to its flash estimate of a 0.3 per cent drop.

He told BT: "We think that prices could have risen in late June . . . The flash estimates do not factor in the last two weeks of June. When URA revised up the number, it implies that in the last two weeks of June, prices have already started rising."

He also noted that unsold inventory has dipped to a record 22-year low of 17,000 units as at June this year, which, going by the current selling rate, could be cleared within about 16 months.

This is because households that stayed on the sidelines through the 2014-to-2016 property market lull are re-entering, and they have also built up their household balance sheets over the past few years, he said.

Now, concurrent with the turnaround in sentiment this year, their aggregate net cash to equity has improved from 5 per cent in 2016 to 6 per cent this year. Gross cash holdings averaged S$300,000 per household in Q2. Including debt, net cash position was S$74,000. Mr Ng thinks that the pent-up demand could be unleashed now.

Official URA numbers show a cumulative 0.4 per cent drop in the first two quarters. Mr Ng is expecting prices to increase 0.8 per cent in Q3 and 1.2 per cent in Q4.

Other leading indicators that convince him that he is right include expectations of improvements in GDP growth figures; an approximately 12 per cent year-on-year increase in the Straits Times Index (which is said to be a six-month leading indicator for the property market); as well as a 56 per cent year-on-year increase in developer sales volume in the first seven months of this year.

But whether or not prices will double sooner than the 2030 timeline, Mr Ng said he is unable to tell, because new supply from en-bloc redevelopments could result in further shifts in the market.

"It is a time period of about 13 years, so it could be more than one cycle. Could be up-cycle, down-cycle, up-cycle . . . Micro-markets historically have moved in cycles, so I wouldn't be surprised if it's a cyclical move to 2030."

READ MORE: En-bloc fever is back