Home prices could rise 3-7% in 2018: RHB

The stable job market and strong optimism are the main drivers of growth.

Singapore should brace itself for a 3-7% rise in home prices in 2018 on the back of continuing economic growth, RHB Research revealed.

According to a year-end report, a 0.7% QoQ rise in the Urban Redevelopment Authority’s (URA) Residential Property Price Index was a good indicator of Singapore property prices bottoming out.

RHB analyst Vijay Natarajan said prices are expected to rise, due to a stable job market, strong buying optimism driven by local buyers, and a surge in liquidity and replacement demand due to rise in en bloc sales.

The supply of private home units peaked in 2016 and has been on a steady decline. Private home sales in 2018-2019 could reach 7,893 and 8,696, respectively, which would be below the 10- year average supply of 11,472 units. The 10-year average annual demand for private homes stands at 9,978.

Natarajan assessed that recent land sale bids are factoring in a 10-40% appreciation in property prices assuming developers achieve their typical profit margin of 10-15%.

Developers have to build, sell and complete a project within five years or else they face paying a stiffer additional buyer stamp duty (ABSD) penalty, composed of 15% of land cost plus interest expense.

Whilst it is expected for property prices to rise, Natarajan thinks the bids are overly optimistic in nature and could limit the profit margins of developers.

Whilst an increase in property transaction volumes and single-digit increase in property prices is expected, a soft rental market with 8.4% vacancy rate, intense competition in land sales, and a risk of the government implementing additional supply-side measures to maintain market stability could pose a threat to recovery in the residential property market.