Is the Singapore private property market heading towards the ‘bubble’ territory?

Bloomberg News reported on February 24, 2014, that through a research report written by analysts from Citigroup showing that Singapore’s household debt tied to the real estate market is only a fraction of property values. According to some of the excerpts of the report, Singapore’s SGD 203.0 billion (USD 160.0 billion) of mortgages amounted to approximately 24.2 percent of the properties during the third quarter ending September 2013.

The release of this report and its analysis was in contrast to the critique made by a Forbes Magazine editor last month indicating the island state is heading towards an ‘Icelandic-style’ meltdown. The Monetary Authority of Singapore (MAS), the nation’s de facto central bank, immediately refuted the report citing that residential loans have declined and household balance sheets are strong.

The city-state’s Urban Redevelopment Authority (URA) released its fourth quarter 2013 real estate statistics showing that prices of private residential properties declined by 0.9 percent during the quarter, and was touted to be the first decline in overall prices since the first quarter of 2012. For the whole of 2013, prices of residential properties increased by 1.1 percent lower than the 2.8 percent in 2012.

A chart illustrating the impact of the various property cooling measures have on Singapore’s property values is as follows:

Chart of Singapore private property prices - Feb 25 2014

Source: Urban Redevelopment Authority (URA)

As readers might noted that private property prices in general have shown a toppish pattern the first quarter of 2012 when the first round of property cooling measures were being implemented, namely the total debt servicing ratio (TDSR) measures where all new private property loan applications will take into account the total debt, including existing personal loans, vehicle loans, credit card loans, among others. This has resulted in some of the drop off in demand for private property purchases, especially the speculators who have benefited from the uptick in private property purchases since the beginning of the first quarter of 2009, where there was a sudden spike in private property prices as shown by the above diagram.

The question on most investors’ minds will be what is the potential outlook for the Singapore private property market in 2014. According to excerpts obtained from a January 15, 2014 research report written by analysts from property research firm, Orange Tee, the forecasts for 2014 looks quite promising for buyers, with new launches expected in 2014 following the seasonal December lull periods where year-end holidays are seeing families taking vacations during the school holiday breaks. The pace of marketing efforts made by the local developers in Singapore is expected to pick up as competition among developers  has been intensified following the implementation of the property curbs. The various rounds of property cooling measures for the past few years have been showing some resilience, but since the implementation of the TDSR framework, private property speculators have appeared to have been taken the brunt of the full impact of their past property purchases. Genuine homebuyers, including the first-timers will find many property bargains and expected to be spoilt for choices. Upgraders or those looking for the second and third home might find themselves catching up with gradual increase in monthly mortgage payments as a result of the TDSR measures that are intended to root out speculators.

A chart showing the detailed breakdown by the category of private residential property prices in Singapore is as follows:

Chart showing private property residential prices broken down by category - Feb 25 2014

Source: Urban Redevelopment Authority (URA)

As readers might have noticed that private property prices across all categories have been showing some toppish to downtrends starting from the later half of 2013. The ‘Semi -Detached’ housing category (pink line), is showing quite a significant drop off during the later half of 2013 indicating a possible correction going forward in 2014.

Based on the analysis of the latest statistics published by the Urban Redevelopment Authority (URA) in Singapore, along with other private forecasters, it is generally concluded that the Singapore property market scene is not heading for an imminent collapse as cited by the Forbes Magazine editor, but rather a gradual pace of declines following the various anti-property speculation measures being implemented by the Singapore government in order to cool down the real estate market in Singapore. It is generally viewed that in 2014, potential first-time home buyers, especially newly married couples will not have many issues in trying to find housing, as the Singapore government has been aggressively fine tuning its housing supply in order to meet some of the aspirations of young couples seeking to establish their first homes. The various schemes offered, particularly within the public housing sector, are intended to limit the potential delays due to the long queues being formed in order to secure the keys in the next three years or so. In the long run, I believe that it bodes well for buyers seeking to make their first home purchases in Singapore.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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