Property prices to slide for another two years: UBS

Asset values are under threat.

Singapore's real estate market will continue to deteriorate for at least the next couple of years, with occupancy and rents under pressure from slow economic growth, weak demand and high space supply.

According to UBS analyst Wen-Ching Lee, asset values in the city will face obstacles arising from rising financing costs. Capitalization rates are also set to rise for the coming years.

"Property prices across the residential and commercial sectors are likely to decline for at least the coming two years as capitalization rates rise at a time when rents are under pressure from sluggish demand and rising supply. Investors may selectively take profit on their property investment at a time when yields are still historically very low, or significantly lengthen their investment horizon," Lee noted.

In the residential property space, Lee noted that developers have no escape from the continued decline in asset prices even if they delay the launch of their projects.

"Despite developers delaying projects, new units accounting for around 9% of existing stock are expected to be marketed between 2016 and 2018, adding further pressure to vacancies and rents. Higher mortgage rates are discouraging new buyers," she said.

“Singapore's real estate faces a challenging environment with already diminishing office rents and demand, rapidly declining rental reversion for all other sectors, while at the same time supply is increasing and higher interest rates push capitalization rates higher. We see suburban malls as the most resilient sector, while offices and hospitality are more cyclical,” Lee added.