What lies ahead for Singapore’s residential real estate market in 2016

The latest flash estimate releases of the private and HDB residential market statistics paint a mixed picture on the general market conditions for housing in Singapore. On one hand, while real estate prices in the private residential market have declined by 0.7% on a quarterly basis in 1Q2016, HDB resale market prices declined at a slower pace of 0.1% on a quarterly basis during the same quarter. Home buyers will be asking themselves whether 2016 could be a year of bargains, while home sellers will be wondering when will there be a recovery in real estate prices. With no end in sight of the removal, or tweaking the ongoing property cooling measures, market participants have all the reasons to be concerned about how real estate prices will fare in 2016

The private residential real estate market

The flash property price index (PPI) for 1Q2016 released last Friday, April 1 did not set off any alarm bells, and many have acknowledged that real estate prices in Singapore will continue to be weigh down by external economic factors, and the ongoing property cooling measures. The government has already reiterated in late January, and the Budget 2016 statement that it is probably too soon to lift the cooling measures as this could lead to a sudden surge in property buys, causing prices to rise unexpectedly, and might jeopardise the overall stability of the real estate market in Singapore.

The overall numbers in 1Q2016 noted the ongoing price deterioration for suburban or Outside Central Region (OCR) property prices with prices falling by 0.9%, compared to no change in 4Q2015, while property prices in the city fringe or Rest of Central Region (RCR) have stabilised with prices falling by 0.4%, similar to last quarter in 2015. The only region that bucked the overall downward trend is the Core Central Region (CCR) with prices rising by 0.4% in 1Q2016, compared to 0.3% decline in 4Q2015.

Source: Urban Redevelopment Authority (URA)

Source: Urban Redevelopment Authority (URA)

Based on the 1Q2016 private residential market prices, many market analysts have expressed doubts that a convincing market recovery is in sight as there are still many market uncertainties that might throw up several obstacles to the recovery process. The two major factors cited by most analysts are the slowing global economy, and the government’s insistence that the property cooling measures need to be put in place. The forecasts by property consultant, Knight Frank painted a pessimistic outlook for 2Q2016 with prices falling by 0.5% to 1% in the OCR region, while prices non-landed private homes in the RCR region could experience a moderate decline of 0.1% to 0.4%. The CCR region home prices could fall in the range of 0.2% to 0.3% in the upper range of the forecast.

Looking at these market predictions, one might probably agree that there is still legroom for property prices to fall. The global economy is still in a delicate shape, and with major market uncertainties, many home owners will put off their property purchase plans until things are settled down. These home owners will still shop around for other properties, but there is no urgency to commit to a property purchase.

The HDB resale market

On the public housing front, HDB resale prices fell by a marginal 0.1% in 1Q2016, compared to a rise of 0.1% in 4Q2015. This, according to many analysts, shows an overall stabilisation of resale prices.

Source: Housing and Development Board (HDB)

Source: Housing and Development Board (HDB)

Although there is an ongoing mortgage service ratio (MSR) levy of 30% for HDB resale transactions since August 2013, and a slight dip in prices following that, HDB resale prices are nevertheless still showing an uptrend since the pre and post financial crisis in 2008. Some of the reasons cited by market analysts, including DTZ’s head of research, Lee Nai Jia who pointed out that resale flat prices are supported by those who need a home for a short time period and those who prefer to live close to their parents. Lee noted that demand for HDB flats in mature housing estates will still hold up despite the current slow economic conditions.

PropNex Realty CEO, Mohamad Ismail Gafoor thinks that with an increase in transactions due to falling prices, more buyers will choose to pick up resale flats and this could result in prices becoming flattish in 2016, with marginal price movements in the minus 1% to plus 2% range. The volume of HDB resale prices might also exceed 20,000 units in 2016.

HDB home buyers are now spoilt for choice with an estimated 18,000 new BTO flats to be launched in 2016, up from 15,000 flats in 2015. This could act as a stabilising force for HDB resale prices with demand expected to be diverted to this crop of new flats. Moreover, with the higher monthly income ceiling of $12,000 for HDB flat applicants, there will be more eligible buyers who were previously not qualified to buy HDB flats and will like to choose the cheaper HDB housing alternative in view of the various market uncertainties.

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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