Property cooling measures to stay till at least 2017: analysts

Singapore

THE property cooling measures are unlikely to be unwound this year, with interest rates expected to stay low for a longer time amid greater uncertainties after the "Brexit" vote.

It would seem then, that a relaxation of the policy could come only in 2017 at the earliest, said speakers at a property market seminar organised by the Real Estate Developers' Association of Singapore (Redas) on Tuesday.

OCBC head of treasury research and strategy Selena Ling said that while there had been speculation that a tweaking of property market measures would follow the recent easing of car loan curbs, "that does not seem to be the case".

Describing the ongoing price adjustment in the housing market as a "soft landing" marked by less volatility than in other key Asian markets, she said: "I think the earliest we may see some unwinding of the measures will be 2017, because we haven't quite reached the double-digit price correction that they want."

Private residential prices have fallen by 9.4 per cent since their peak in the third quarter of 2013, based on second-quarter 2016 flash estimate from the Urban Redevelopment Authority (URA).

The flash 0.4 per cent quarter-on-quarter slide in Q2, being the smallest decline in a losing streak lasting 11 straight quarters, has been read by some property consultants to mean that a bottoming-out in private home prices is around the corner.

Ms Ling said that, in light of more supply coming onstream and weak demand from a slowdown in the creation of new households, there will be greater pricing pressures, though the downside risks remain fairly modest. Some creative offers by developers have also worked to stimulate sales, she added.

The increased macro-economic uncertainties arising from the UK's vote to leave the European Union also mean that globally, central banks are likely to maintain an accommodative monetary policy; a re-allocation of resources and investments out of the UK and the euro zone may benefit Asia, where property has traditionally been an attractive asset class.

Concurring, JLL head of research for South-east Asia Chua Yang Liang reckoned that a trough is nearing and, with the residential prices - particularly that in the Core Central Region and the city fringe - stabilising, there is less motivation for government to change any policy.

But Redas president Augustine Tan is circumspect about whether more Asian investors will turn their eye back to investing in Singapore real estate; in the wake of the "Brexit" vote, investors are taking a wait-and-see approach.

He reminded his audience at the seminar that the property cooling measures were introduced at a time when "this sea change of global economic relationships was nascent and undetectable".

He said in his opening remarks: "In an increasingly inter-connected world, as Brexit clips the movement of trade and people across Europe, the rippling effect of slower growth will impact Singapore. At the same time, businesses continue to contend with rising business and manpower costs."

In face of weak demand, landlords and developers of retail, commercial and industrial properties are feeling the pressure on rents and high vacancy rates, said Mr Tan, who is also executive director of property sales and corporate affairs at Far East Organization.

The slowing global economic growth and market volatility have also affected the banking industry; central bank data showed an eighth straight month of contraction in total bank lending in Singapore in May. "Clearly, the risks are very real and that is something we would lose sleep over if the current weakness in the economy persists," said Mr Tan.

On the residential front, demand has fallen sharply amid a hefty supply. At new property launches, sales have been petering out after the initial launch.

To move sales, developers have cut prices by 5 to 25 per cent for some of their projects, he noted, with the steepest discounts dangled mainly for completed projects.

But Mr Tan said he believed such price cuts to be just a start. Pressures are looming for the many unsold units affected by qualifying certificate (QC) rules and the additional buyer's stamp duty (ABSD) remission claw-back. "It will get worse before it gets better, and I suppose it is not difficult to reach (a) double-digit (fall) soon," he said, in a reference to the overall URA private residential price index.

Giving an update on its projections, Redas estimates that some 1,100 to 1,200 unsold units across 17 developments will be affected by QC extension charges by year's end; the charges are estimated to come close to S$138 million. About 5,300 units remain unsold in 47 developments, excluding executive condominiums, where ABSD with interest will become payable from end-2016 to 2018.

Dr Chua noted that this comes amid a record completion of 21,906 private homes this year.

But he added that a lot of value is hidden in prime residential homes here, which have become compelling, compared to properties in other global cities. The capital values of JLL's basket of prime non-landed homes in Districts 9, 10 and 11 have fallen 19 per cent from Q2 2011. Meanwhile, prime residential prices in Hong Kong are now 165 per cent higher than in Singapore; in London, they are 92 per cent higher. Prices in the two cities have risen over the last five years.

Dr Chua projected that mass-market non-landed homes, which saw the steepest rental decline of 10.4 per cent from their recent peak of Q1 2013, are still on moderate price decline, and that prices of high-end and mid-tier homes may stabilise in the next six to nine months.

Meanwhile, the slow steady rise in interest rates is starting to taper off and with that, the benchmarks used to set home loans have also eased.

OCBC has adjusted its year-end forecast downwards for the three-month Sibor (Singapore inter-bank offer rate) to 1.05 per cent and the SOR (swap offer rate) to 0.9 per cent. Ms Ling said this "lower-for-longer " trend will continue as global uncertainties ensue.

But she said that while short-term derisking post-Brexit implies further downside risks to equities and credit space, the chase for yield will return.

"A lot of the re-allocation of resources and investments out of the UK and the euro zone will try to find a home elsewhere. Asia looks like a relative safe haven."