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14 Sep 2013

Property market faces higher risk of correction, say experts

Source: Straits Times
By Melissa Tan

SOME analysts are warning of the rising risk of a property market correction in the next two years owing to global macroeconomic trends and a possible oversupply of homes in Singapore.

However, others argue that any decline in property prices is unlikely to be large, because of soaring land bid pri...ces and keen interest from foreign investors.

Expected higher interest rates could coincide with a big rise in housing supply over next year to 2015, said Barclays economist Joey Chew in a note on Thursday. "A macroeconomic shock or a policy misstep could also trigger a market correction."

Home loan interest rates could spike if capital flows out from Singapore after the United States Federal Reserve withdraws its monetary stimulus programme and the banking system has low levels of excess deposits.

Another factor is a possible housing supply overhang. Nearly 120,000 public and private homes are likely to be completed over the next three years.

"We think it would take only a couple of major disappointments in property launches to dent market confidence," Ms Chew said.

The openness of Singapore's economy also means that it is vulnerable to external shocks, which could tip it into recession and raise unemployment.

Ms Chew noted that previous property market corrections in Singapore have coincided with economic recessions. For instance, the collapse of property prices in 2008 came after the sub-prime crisis in the US and a subsequent slowdown in financial activity in Singapore.

She flagged the possibility of a "policy misstep" by the Government. Citing several rounds of property market measures, she said: "The market may now be approaching a breaking point."

Maybank Kim Eng stock analyst Wilson Liew added that investment demand has fallen owing to recent cooling in the Housing Board flat resale market. The median cash premium that buyers pay for a resale flat fell to a four-year low last month.

Property market sentiment has dampened since the introduction of mortgage curbs in June. Sales were tepid at the launches of The Glades and The Skywoods last weekend. Consultants expect last month's new home sales to be at most 700 units. Figures will be out next Monday.

But consultants said home prices are unlikely to plunge even if Singapore goes into recession, due to soaring land prices and strong interest from foreign developers and investors.

"The Singapore market can still be supported by buying demand, especially if China's economy is humming along," said Knight Frank research head Alice Tan, who noted that there was strong interest in Singapore property from Chinese players.

Ms Tan said smaller developers still want to build up their land banks. This could keep land bid prices high, and translate to higher selling prices for homes.

Real Estate Developers' Association of Singapore president Chia Boon Kuah said on Wednesday that interest from foreign developers and private equity funds in Singapore real estate "remains unabated".