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FITCH Ratings said in its latest Asia-Pacific Structured Finance Chart that Singapore's private residential property prices have fallen 8.2 per cent from its peak in September 2013.
The fall has mainly been driven by tighter policy controls aimed at cooling the housing market. Fitch believes if immigration rates remain low with vacancy rates and property supply remaining elevated, property prices will continue to soften.
It said: "Negative shifts in the Singapore economy have previously impacted property prices. The slowing economy, along with the cooling measures imposed by the regulator has had a dampening effect on property market sentiment.
"Singapore experienced significant growth in immigration up until the global financial crisis in 2008, putting pressure on existing housing supply which subsequently caused property prices to soar, which also flowed through to the public sector housing market.
"Property supply has since increased and has resulted in higher completion rates since 2014. However, at the same time, foreign resident immigration growth, while still healthy, has slowed by almost half from 4 per cent at end- 2013 to 2.1 per cent in September 2015. This lower growth has also correlated with a higher property vacancy rate of 9.1 per cent in September 2015, up 2 per cent from end-2013."
Benchmark mortgage rates have increased since end-2014, with mortgage rates currently sitting between 2.0 per cent and 2.5 per cent. It is expected to rise moderately over the next two years. Fitch does not believe that interest rates will have a large impact on property prices in the near term.
Recent property price movements are unlikely to impact Fitch's ratings of Singapore's mortgage covered bonds, however.
Fitch mitigates downward price movements in its analysis by applying a market-value decline of up to 60 per cent in a 'AAA' stress scenario to capture any extreme movements in property prices, it said.