JLL warns of further correction in property prices

Singapore

RESIDENTIAL property prices in Singapore could fall by 4 to 6 per cent a quarter, going by past correlation studies with the stock market, said investment management firm JLL on Wednesday.

In fact, recent declines in the domestic stock market could signal a further correction in property prices in the months ahead - especially since stock market movements typically lead property market movements by one to two quarters.

Said Chua Yang Liang, JLL's head of research, South-east Asia: "Looking back into the past, the residential market for example, corrected by 4 to 6 per cent a quarter in some instances. Should the market lose footing, it is not impossible to expect a recessionary correction of this magnitude.

"If this scenario pans out and threatens the stability of the property market and the wider economy, it may prompt the government to re-visit its property cooling measures and other macro-economic policies including economic stimulus packages."

JLL said much depends on China; should conditions there deteriorate further, a more severe impact on Singapore's property market cannot be ruled out.

"Downside risks in the Singapore economy from external shocks, leading to higher unemployment levels, a weaker Singapore dollar and rising domestic interest rates - similar to the Asian Financial Crisis (AFC) conditions - could lead to a sharper-than-desirable price correction in the property market," it said.

While it stressed that the economic reasons behind the AFC were different, the turmoil in 1998 showed the disruptive effects a stock market crash could have on the Singapore property market.

Then, the currency and financial crisis in Thailand led to an Asia-wide currency meltdown, and Singapore was not spared.

Said JLL: "Stock market losses, sharply rising interest rates and a severe credit crunch arising from its proximity to the epicentre of the crisis, and rising unemployment drove Singapore property prices lower by between 35 per cent and 44 per cent during the crisis, after the property bubble burst across Asia in 1998."

Looking ahead, JLL expects the ongoing volatility in stock markets to persist, with the lack of clarity over China's ability to manage a slowdown, increasing the downside risks.

It also observed that certain Asian economies - including Malaysia, Thailand and South Korea - were now more vulnerable to a global economic slowdown, since their debt levels were actually higher than they were before the AFC.