Private property prices may fall another 10% in next two years: report

PRIVATE property prices in Singapore could fall a further 10 per cent from current levels over the next two years, said BNP Paribas in a research report on Monday.

"Our central case is for a relatively orderly unwind. Maintenance of 5 per cent per annum household income growth and a two-year period of correction (based on previous property cycles) means that prices need to fall by 10 per cent over the coming two years to lower the price-to-income ratio to 8.5 times.

"Such a decline will push up loan-to-value ratios and force households to inject fresh capital into their mortgages when they attempt to refinance, further constraining private consumption in the coming years," said BNP Paribas, adding that tighter immigration policies have had a "detrimental impact" on demand for housing.

At the same time, however, Nomura believes that in 2016, Singaporean tenants could turn buyers, and landlords could be motivated to sell - possibly resulting in higher resale transactions as well as demand for completed units in developers' inventory.

On the buyers' side of things, Nomura notes that monthly cash outlays could be lower than monthly rent payments in 2016. This is because the Central Provident Fund (CPF) Ordinary Account contribution for Singapore workers will be higher, and can be used to service mortgages.

Sellers, on the other hand, are likely to be motivated by a combination of rental declines, higher mortgage rates and higher property tax.

"If our thesis is proven correct, we believe there could be a robust rebound in resale transaction volume in 2016 (forecast)," said Nomura, adding that CapitaLand could benefit the most from higher demand for developers' completed but unsold inventory.