Mainstream media has been reporting for quite some time that property prices in the Singapore residential sector have been declining. Most of these have been credited to the introduction of Total Debt Servicing Ratio (TDSR) and the Mortgage Servicing Ratio (MSR). This is a measure introduced by the Monetary Authority of Singapore (MAS) to prevent excessive debt accumulation by Singapore residents.
Many people have been wondering whether property prices in Singapore have bottomed out. Views on the direction of the property market are mixed. Some people believe that a recession will push property prices further downwards while others believe that the decline of the property market is a result artificially brought about by cooling measure adopted by the Singapore Government. Both sides are probably not wrong in their analysis.
Whether property prices will continue declining is anyone’s guess. However, here are some indicators that show that prices may not have bottomed out…yet.
TDSR and MSR are here to stay
The HDB resale price index reached its peak at 149.4 in the second quarter of 2013 (2Q2013), a 49.4% increase from prices in 1Q2009. The appreciation has come to an abrupt stop after the introduction of the TDSR. Since then, prices have declined by 9.9% to an index of 134.6 in 3Q2015.
Prices are still about 34.6% above what it used to be in 2009. With Singapore households already having one of the highest debt levels in South East Asia, it is unlikely that our government will remove the TDSR and MSR measure anytime soon.
With TDSR and MSR acting as a countermeasure to excessive credit growth and property price manipulation, it is highly unlikely (in our opinion) that residential prices will do a U-Turn and start increasing anytime soon.
Exhibit 1: HDB Resale Price Index (2009 = 100)
Source: Housing and Development Board
Guidance from the Ministry of National Development (MND) have indicated a total of 177,710 (inclusive of 2015) new residential units to be expected to be completed by 2018.
This huge supply of units is an initiative by MND to reduce the backlog of orders previously accumulated in past years. To put things into perspective, the average growth of residential units built between 2014 and 2017 is 3.7%. That is more than twice the average growth rate of residential units between 2010 and 2013, which were at 1.8%.
With a continuous healthy growth of supply in residential units, a spike in property prices is unlikely.
Exhibit 2: Supply of New Residential United by MND
Source: Ministry of National Development
Exhibit 3: Expected No. Of Residential Units & Residential Units Growth Rate
Note: E = Estimated using MND’s figure in Exhibit 2
Source: Urban Redevelopment Authority, Ministry of National Development and DollarsAndSense
EC and private property vacancy rate is at its peak since 2010
Executive condominiums (ECs) and private properties currently have a vacancy rate that is showing a peak of 12% and 8% respectively. This is a rate not seen since 2010.
With high correlation between HDBs, ECs and private properties, we expect the high vacancy rate to continue to put a downward pressure on overall property prices in Singapore.
Exhibit 4: Vacancy Rate of ECs and Private Properties
Source: Urban Redevelopment Authority
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