Fears spread as private home prices face downside risks in 2012

2011 was a difficult year for Singapore property stocks with the sector declining 31% YTD and underperforming the broader index’s 15% dip, hampered by a series of policy restrictions. We started 2011 with the expectation that property prices would appreciate modestly by up to 5% amid a tug of war between liquidity and policy overhang. This had largely panned out with private home prices rising 5.6% for 9M11 (vs 14.4% for 9M10) amid robust primary sales volume.

Going into 2012, we see increased downside risks for private home prices over the next 12 months with transaction volume declining. We expect private home prices to fall by 5% next year while primary volume demand is likely to taper off after the recent round of policy tightening. Whilst land supply for 1H12 has been scaled back, the recent policy tightening measures against a backdrop of worsening global macroeconomic outlook coupled with rising vacancy and completions has added downward pressure to residential prices. However, with unemployment at relatively low levels of c2-3% and interest rates benign, the possibility of a sharp decline in home prices is low, as both individuals and developers have strong holding power.

Residential price momentum has been slowing. Private residential price increase has been slowing for the past 8 quarters, rising only 1.3% in 3Q11. For the 9M11, prices increased a marginal 5.6% compared to the 8.4% appreciation in HDB resale prices over the same period as policy tightening hampered rapid price growth.

Prices expected to retrace by 5%….
Going forward, we expect private residential prices to decline by 5% in 2012, in tandem with the weaker economic outlook and rising new completions. Downside risks have also increased with the recent measures to clamp investment demand. However, we do not see a case for a sharp decline in residential prices, supported by relatively healthy employment levels and a low interest rate environment.