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Prices in Singapore residential properties unlikely to rise despite low interest rate environment

CS

An analysis by LTN’s Paul Ebeling of Singapore residential real estate finds that while the number of private residential units sold in September by Singapore developers hits the highest in 6 months, few forecast significant price rises of property prices in the city state due to government’ s cooling measures.

According to the latest data released by Singapore’s Urban Redevelopment Authority, Singapore developers sold a total of 2, 621 private residential units in September 2012, a sharp rise of 84% compared to previous month.

The unlimited quantitative easing announced by US Federal Reserve in mid-September fueled higher speculation activity on expectation of rising property prices.

But, the government announced early this month to tighten the home loan tenure which is now capped at 35 yrs and lower loan-to-value ratio imposed for loans above 30 yrs or if the loan period extends beyond retirement age of 65 yrs, few research houses foresee significant rise in housing demand which in turn will push prices of the private houses in the City State.

Following the 6th round of government’s cooling measures, Credit Suisse Research (NYSE:CS) said the sales volume of Singapore’s private property is expected to be hit in the near term, but added “prices are expected to be resilient in the near term given the low system vacancy and strong household balance sheet.”

The Swiss research agency also did not anticipate an oversupply as it believed the government has the flexibility to defer some supply completion.

CIMB Research contended that with rates staying low for an extended period, investor tolerance of low yields in property investment should persist.

Low interest rates should also accelerate home buying decisions. Loan restrictions in the latest round of cooling measures could put pressure on big-ticket units such as high end property projects and large units given the slightly older buyer profile.

September figures suggested prices have held up well, CIMB Research said the recent loan tenure restriction signals policymakers’ intention to intervene if physical prices remain elevated.

The market consensus is that a crash in Singapore’s property prices is highly unlikely even with the introduction of latest round of cooling measures.

Housing demand is a major function of Singapore’s economic foundation, demographics, plans and the macro-environment.

The property market is buoyant as current unemployment rates is still as low as about 2%, a growing GDP per capita of about 3.7% in average for next 5 yrs, population is poised to hit 6-M in Y 2016, and a low interest rate environment and high liquidity.

LTN’s POV is that the next few months will be Key in judging demand and the overall impact of the cooling measure on prices, a crash in property prices is unlikely unless there are major demand shocks.