Rocketing home price hikes to trigger more policy intervention

The 0.6% rise drags a lot of disadvantages.

According to CIMB, physical completions in the pipeline rose, while completion estimates for 2013 were raised yet again. We see policy risk and rising vacancy rates as negatives for 2013.

Here's more from CIMB:

Private residential prices in 3Q12 inched up 0.6% qoq. Resale prices inched up, along with HDB’s median COVs. Vacancy rates increased to 6.1% from 5.9% last quarter, on the back of more physical completions.

Pipeline supply continued to increase, with physical completion estimated for 2013 raised by >2000 units. Resale volumes saw a slight dip from last quarter.

Rental index was up 0.9% qoq (2Q12: 0.2%). CCR saw the smallest increase. Rents in CCR weakened as projects entered the rental market.

3Q’s elevated home prices and strong sales volumes point towards a resilient physical market. We do not expect this to change in the near term while interest rates remain low.

Upgraders’ demand for mass market homes will also be supported by higher HDB COVs, which appear to have increased 10-15% on average in
3Q12.

This coincides with higher private resale prices – a negative as further increases in private home prices are likely to draw policy intervention. As new supplies complete, we see vacancy rates trending upwards, though likely to have a lagged effect on home prices while we remain below the long-term average.

Past supply measures appear to have already resulted in higher vacancy rates this quarter from a surge in physical completions. We expect this trend to continue into 2013 with URA raising physical completion estimates for next year.