Why Singapore property tightening measures won't unwind for now

10-15% price correction still needed, says Barclays.

Don't expect the government to lift its property cooling policies, according to Barclays Research, since prices are still relatively inflated.

There has been talk that the government may be convinced to unwind its tightening measures given the recent downturn in residential market volumes and prices.

But for Barclays: "We believe this is premature as prices are still elevated. We believe a 10-15% correction is warranted before the government rolls back policies that took four years to have an obvious impact."

Here's the complete Singapore real estate and REITs analysis from Barclays Research:

The recent softening of the residential market in terms of volumes and prices and a significant cutback in the government's land sales programme might have raised hopes that the government will unwind its existing tightening policies for property. We believe this is premature as prices are still elevated, and we believe a 10-15% correction is warranted before the government rolls back policies that took four years to have an obvious impact. We would still prefer to wait to become more positive even if the government decides to roll back the measures as historically home prices have continued to slide on weak fundamentals, which we expect to prevail until 2015 or even 2016. We reiterate our UW ratings on the developers CDL and Keppel Land.

Is the government going to roll back tightening measures soon? We believe three events might have raised hopes that the Singapore government might be ready to unwind the seven rounds of property measures put in place since September 2009: 1) 11M13 developer sales fell 30% y/y to 14,678 units; 2) the government has reduced its half-yearly land supply for private homes significantly for the first time in four years; and 3) 4Q13 URA private home prices showed their first decline in seven quarters.

Eventually but not now: Private home prices are still 61% above 2009 levels and GDP, employment and interest rates still appear favourable. In the previous two cycles, the unwinding of tightening measures only started after the onset of a crisis and a significant fall in property prices (-16% in Nov 97 and -30% in Jun 98 from the 2Q96 peak, -13% from 2Q00 mini peak in Oct 01; Figure 5).

10-15% correction before measures are unwound: We would expect a 10-15% correction in property prices before the existing tightening measures are unwound with supply-side measures to be eased first by suspending the Confirmed List and extending the Project Completion Period for developers. This could be followed by the easing of the stamp duties, removing the Sellers' Stamp Duty and Additional Buyers' Stamp Duty.

We expect weak fundamentals to overrule any relaxation in policies. As we show in Figure 5, the unwinding of measures was not a miracle cure previously when fundamentals were weak as physical prices continued to slide 8-34% even after measures were eased or removed. We expect the liquidity and low interest rate conditions to reverse in the next two years, exacerbated by the high supply pipeline, estimating that home prices will correct 5% in 2014 and another 5-15% in 2015. We remain negative on the developers, retaining our Underweight ratings on CDL and Keppel Land as their valuations are at a 29-32% discount to our RNAV estimates, which are not near their previous lows. Our only OW is CapitaLand given its more diversified profile, recovering ROE and its deeper 39% discount to RNAV.