Singapore private home prices to grow 2% in 2020, 2021: Fitch Ratings

PRICES of private homes in Singapore are expected to show modest growth over the next two years, riding on macro-prudential measures and stable mortgage performance, anchored by strong household finances. This is according to the latest findings from Fitch Ratings' Global Housing and Mortgage Outlook report.

Overall, the rating agency expects nominal home price growth to remain at about 2 per cent in both 2020 and 2021, down from nearly 8 per cent in 2018. "We expect home price growth to reflect the recovering real GDP (gross domestic product) growth rates of 1.5 per cent in both 2020 and 2021, after growth decelerated to 0.6 per cent in H1 19," Fitch said. 

It added that lower interest rates and improving borrower affordability, as household incomes grow faster than home prices, should also contribute to rising property prices.

From Q3 2018 to Q1 2019, private home prices declined 0.7 per cent, due to regulatory tightening and mortgage rate increases, which dampened market sentiment. However, property prices rebounded slightly in Q2 2019, and Fitch is projecting "minor growth" for the rest of the year. 

"If the government views home prices as rising more than is justified by economic fundamentals, we expect that the government would again cool the market through macro-prudential measures," Fitch explained. 

Over the next two years, Fitch predicts that housing NPL (non-performing loan) ratio will increase slightly, but remain low at 0.4 per cent to 0.5 per cent, thanks to improving household debt to income ratio. 

"Mortgage performance will also be supported by continued low unemployment of about 2 per cent in 2020 and 2021," Fitch said. 

In addition, it does not anticipate a mortgage rate increase in the near future, which would support borrowers' ability to pay, as well as stable loan performance. 

Mortgage rates rose rapidly to 2 per cent at the end of H1 2019 due to a sharp rise in the benchmark rates. However, Singapore's benchmark rate has started to decline following the rate cut by the US in the middle of this year, Fitch noted. 

Looking ahead, Fitch forecasts mortgage lending growth to remain subdued in the near term. The lending growth slowdown in 2019 reflected the increase in additional buyer's stamp duty and tightening of LTV (loan-to-value) limits in July 2018, Fitch added. 

That said, the growth is expected to remain limited, reflecting expectations for a slowing annual population growth of below 1 per cent, and the high likelihood that the government would apply cooling measures if home prices show signs of overheating, the rating agency noted.

Earlier this week, BT also reported that Singapore's private housing market is poised for modest price growth next year, amid a resilient leasing market. This comes even as developers expect to continue being challenged by the significant supply of unsold private housing units in the pipeline.