Singapore Home Prices May Be Poised to Plunge - WSJ

November 28, 2011, 4:12 PM SGT. WSJ SEA

If you’ve been waiting for a chance to purchase a property in Singapore, maybe you should wait some more.

The city-state’s red-hot residential real estate market could be poised to plummet 20% to 30% over the next three years – at least according to some analysts, who say demand is dampening just as a flood of new flats is hitting the market.

“We now expect a multi-year downturn in the residential market, with overall private home prices falling by 22% to 26%,” by the end of 2014 said David Lum, an analyst for Daiwa Capital Markets, in a recent report.

Analysts predicting a drastic drop in Singapore property prices are still in the minority. Yet a growing number of analysts are at least somewhat concerned that the conditions driving Singapore property prices and rents higher in recent years – notably brisk demand and tight supply – are about to be reversed.

The country’s gross domestic product growth is expected to slow this year and stay low. Meanwhile, recent government restrictions on migration are expected to crimp the population growth, which was also underpinning demand for homes.

“In 2005 to 2010, Singapore’s population grew by 21%, or 3.3% (per year). This is over three times faster than the 1% per year recorded in the previous four years,” said Standard Chartered Bank in a report last week. “Due to the high population growth and the low home completions, residential rents and prices have climbed 75% since 2005.”

As political pressure from concerned citizens has forced Singapore to make it tougher for foreigners to work in Southeast Asia’s financial capital, population growth will slow to less than 2% per year and residential property prices and rents could fall as much as 30% over the next three years, the report said.

While prices and sales of new flats are stable recently, there are some creeping indicators that demand and prices could tip soon. In October, pre-sales for lower-priced projects were stronger than for luxury projects, suggesting that consumers are becoming more price-sensitive.

The number of unsold properties is rising and expected to continue climbing, as more than 100,000 new residential units are scheduled to be completed by both public and private sector developers over the next three years, according to the Standard Chartered report.

“From late 2012 we believe the sector’s structural issues – rising levels of unsold inventory due to robust launch schedules coupled with a formidable pipeline of completions – will continue to depress rents and capital markets,” Daiwa’s Mr. Lum said.

Singapore has faced similar predictions of big declines in property prices, and slowdowns in population growth, that didn’t fully materialize. During the 2008-2009 global financial crisis, for example, some analysts worried about a potential swoon in the Singapore property prices, and while the market did turn down briefly, it snapped back quickly on the back of a strong economic recovery in 2010. Many analysts note that the government’s close regulation of Singapore’s property market, including oversight over releases of land for new construction, will help keep the market on an even keel in the long run.

The latest reports were analyzing the prices of stock prices and real estate investment trusts and were not intended as guides for home buyers. However, should their predictions on real estate prices turn out to be correct, it could be good news for families that have been waiting for a better deal before they buy – and of course bad news for anyone that has just invested in a home in Singapore