News Analysis: Singapore residential property market to remain weak on continued gov't cooling

As latest home sales continued to slow down, analysts here said that Singapore's residential property market is expected to remain weak this year.

New home sales in December last year were still weak with only 230 units changing hands, which made transaction volumes in 2014 shrinking to half of 2013's level. The demand continued to be adversely affected by the tighter credit markets and higher transaction costs as a result of ongoing government curbs.

To make matters worse, the benchmark interest rate of the city- state is going up. Singapore inter-bank offered rate (SIBOR) jumped visibly higher this year to date, which is likely to hit everyone's mortgage bill.

Deutsche Bank Research estimated that for a 1 million Singapore dollar mortgage, every 10 basis point change in SIBOR will increase the monthly payment by about 50 Singapore dollars per month, assuming a loan tenure of 25 years.

Interest rates remain the key macro risk to the residential market, with an unexpected upward shock potentially impacting demand and affordability.

Analysts agreed that the Singapore residential market is unlikely to improve this year. DBS Group Research said with demand for new units remaining tepid due to ongoing government curbs, buying demand will remain weak.

On the supply side, the market also faced unsold inventory on the rise and a deluge of new unit completion this year. Thus, the DBS forecasts a price dip of about 15 percent over this year to next year.

So far, many developers are still reluctant to cut prices and are still in a wait-and-see mode. Rather than make outright price cuts, many developers prefer to offer incentives such as furniture rebates, rental guarantees and stamp duty absorption to buyers on the side. While these make no difference to profit margins, they help to maintain a facade that headline prices are still holding up.

But Nomura Research said that local developers will find themselves increasingly difficult and meaningless to hide behind incentives. As demand volume drops further, banks are more likely to move against developers, especially if more home owners were to default on their mortgages as a result of higher interest rates.

The Japanese research house expected developers to be more proactive in lowering headline prices this year to stimulate higher sales volumes, especially for projects with an average price point of 2 million Singapore dollars per unit and lower.

Despite weak residential market demand, few analysts expect the government to lift any of its existing curbs soon, citing the marginal price declines so far as the main reason. J.P. Morgan Research said "private and public residential prices fell marginally in fourth quarter last year."

"While the declines were generally steeper than the preceding quarter, the pace remains marginal. As prices have fallen by only 5 percent to 8 percent from their peaks, we do not expect the government to withdraw any of its existing cooling measures in the near term," J.P. Morgan said.

CIMB Research also said "given the marginal price declines so far, we do not anticipate a loosening of policy measures on credit and transaction costs this year. We expect private home prices to decline by another 10 percent in 2015 and 2016. While the high-end market experienced the greatest price declines in 2014, the completion of more sub-urban units over the next two year is likely to depress property prices in the mass-market segment as well." (1 U.S. dollar equals to 1.33 Singapore dollars) Endi