MONDAY'S official Urban Redevelopment Authority (URA) flash estimates of a 1.5 per cent drop in Singapore's private home prices in the third quarter surprised analysts who were expecting the market to have stabilised. It also erased any glimmer of hope there might have been of the market bottoming out after several quarters of mild price declines.
Most believed that buying sentiment took a turn for the worse with the poorer economic showing and fears of an approaching recession. The government has recently revised the expected GDP growth from 1-3 per cent to 1-2 per cent, and the latest manpower statistics show unemployment on the rise.
Some analysts also believed that the URA's recent move to include net prices of units sold from delicensed housing projects could also explain some of the price declines, especially in high-end homes in the city centre.
Delicensed projects have received Certificate of Statutory Completion, and individual strata titles have been issued to the buyers. Previously, they were not required to submit price transaction information to URA, so URA computed their prices from other sources such as stamp duty submissions to the tax authorities. However, these may be slightly inflated, some property consultants say.
The new rule thus requires these developers to strip out any discount, rebate, reimbursement, allowance, payment, voucher and benefits before submitting the net prices of their units sold. This is the first quarter that the URA data is including the net prices of these units in delicensed projects.
SLP International executive director Nicholas Mak believed this explained the large drop in the prices of core central region (CCR) and rest of central region (RCR) properties.
CCR home prices fell 1.8 per cent, after rising 0.3 per cent in the previous quarter, which many took to be a sign of the segment recovering. RCR home prices in the city fringe fell 1.3 per cent, after rising 0.2 per cent in the previous quarter.
Mr Mak said: "As most delicensed projects which offer incentives and discounts are located in the CCR and some in the RCR, this has contributed to the relatively sharper fall in prices of non-landed properties in these regions . . . In the current market, such a change could result in a one-off larger than normal decline in the price index."
But not everyone agreed with him. Savills Singapore research head Alan Cheong pointed out that the price reporting rule change would not explain the equally severe 1.2 per cent price decline in the outside central region (OCR, or the suburbs) and the 2.2 per cent price drop in the landed housing segment, given that there were few and no delicensed projects in these respective segments.
He was also slightly sceptical of the URA data, saying that the ground view he garnered from property agents did not turn up such a bleak picture of the market. "Although prices for the CCR haven't really continued rising in the third quarter, it also did not really fall that much, not only for the CCR, but also for the RCR and OCR," he said.
"What has been surprising is not the direction that the index adopted, but the re-acceleration of the rate of price decline. For the quarter in review, all three regions registered price falls of well over one per cent, which on a quarter-on-quarter basis, is a significant change.
"There will be a lot of variation and noise in this recovery, because the price trend line is so gentle that there will be more noise (than usual) and the market will see-saw," he said.
To give it perspective, this is also the 12th consecutive quarter of overall price decline in the property market, and the magnitude of the decline is also the greatest over this period. Since Q3 2013, private property prices have now fallen 10.8 per cent.
Looking at broader macro-economic factors that none of the segments could possibly escape from unscathed, Vishnu Varathan, head of economics and strategy at Mizuho Bank, said that while rising unemployment does pressure one's ability to finance mortgages and affect developers' pricing power, there is usually a lag effect of four to 12 quarters.
"Rarely are they so coincident," he said. He believed it is rather the effect of rising interest rates and slowing employment growth that has resulted in this pessimism. "People begin to feel it on the ground as a pretty dire condition going forward. As they begin to project forward and look at their horizon, they become very much more cautious about holding such a liability against whatever assets they have purchased, in this case, the property."
Other consultants also noted layoffs in the financial and oil and gas sectors and general uncertainty in the job market. But a slightly more sanguine Desmond Sim, head of CBRE Research, Singapore and South-east Asia, still expects the pace of property price correction to moderate, saying: "CBRE Research expects the residential market to prepare for a soft landing by the end of 2016 and followed by a long term trough."
URA will update the flash estimates four weeks later, including price data from the last couple weeks of September as well. These statistics are compiled based on transaction prices given in contracts submitted for stamp duty payment, and data on units sold by developers up till mid-September.
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