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How low will home prices go?
The cooling measures announced last Wednesday sparked a slew of analyst reports predicting price drops and falling sales volumes. Yasmine Yahya sums up the reactions.

Published on Dec 11, 2011
How low will home prices go? -- ST ILLUSTRATIONS: ADAM LEE

There is one thing all the analysts agree on - property sales will likely fall as a result of the new cooling measures, with prices dropping in the process.

Analysts noted that the measures are aimed at moderating investment demand rather than speculative purchases, as was the case with previous cooling policies.

The new rules are also targeted mainly at foreign buyers. Any foreigner who wants to buy a home will have to pay a stamp duty of 10 per cent on top of the existing buyer's stamp duty of about 3 per cent.

Background story

WHAT ANALYSTS SAY

Standard Chartered: Property prices to plunge by 20 per cent to 30 per cent over the next year.

PropNex: High-end home prices to drop by 15 per cent to 20 per cent and mass-market home prices to fall by 10 per cent to 15 per cent in the next six months.

CIMB: Prices to fall by 15 per cent to 20 per cent next year.

UOB Kay Hian: Prices to weaken by 10 per cent to 15 per cent next year.

Goldman Sachs: Prices to fall by 15 per cent over the next 18 months.

OCBC Investment Research: Prices to soften by 10 per cent to 20 per cent over the next two years.

Background story

A negative surprise

'This announcement is a negative surprise for the market... It is also the first time since 1996 that the Government has imposed stricter residential market measures on foreigners and permanent residents.'

STANDARD CHARTERED'S ANALYSTS

Prompted by home-buying activity

'The recent pickup in the primary home-buying activity may have prompted the Government to take these steps after the review of its housing policies that were a hot issue in the last elections.'

UOB KAY HIAN'S ANALYSTS

The tax will be based on the purchase price or market value of the property, whichever is higher.

Permanent residents who buy a second and subsequent residential property will pay 3 per cent more in stamp duty. Overseas properties will be excluded from this count.

Singaporeans who already have two residential properties will have to pay the extra 3 per cent on their third and subsequent home purchases.

Standard Chartered: New rules will trigger 30 per cent price drop

Standard Chartered's analysts have perhaps the grimmest outlook for the property market.

They already predicted last month that property prices would slide by up to 30 per cent over the next three years due to slower population growth and an unprecedented supply of new homes coming onstream.

The new cooling measures have underscored that view, with the bank's experts believing the 30 per cent drop in prices could happen in just one year.

'This announcement is a negative surprise for the market,' they said in a report last Wednesday.

'It is also the first time since 1996 that the Government has imposed stricter residential market measures on foreigners and permanent residents.'

StanChart also expects the new policy to cause sales volumes to fall 20 per cent in the first quarter of next year.

A potential oversupply of private homes in the next few years could be another factor putting pressure on prices, they said.

On the same day that the stamp duty policy was announced, the Government also unveiled 14 confirmed sites under its land sales programme for the first half of next year.

These sites could accommodate 7,000 private home units in total.

'This is much higher than our expectation of 3,000 units,' StanChart said. 'This adds to the record 37,000 residential units that developers have in the pipeline... which will weigh further on launch prices.'

PropNex: 'A major psychological setback'

PropNex chief executive Mohamed Ismail described the Government's move as 'the harshest cooling measures seen so far', and said the new rules will pose 'a major psychological setback' for the market.

He said the volume of private home sales in the central core region, which includes areas such as Orchard and Newton, will likely dive by 40 per cent, while sales in the mass-market segment will drop by 20 per cent in the next six months.

'This increase in stamp duty, which can amount to $124,600 from an original $24,600 for a $1 million home, is going to dampen the interest in private property investment in Singapore.'

Mr Ismail predicts that in the next six months, property prices will plunge by 15 per cent to 20 per cent in the central core region and 10 per cent to 15 per cent in the mass-market segment.

CIMB: New measures are a bazooka

'The Government has taken out the bazooka,' wrote CIMB Research analysts the morning after the new measures were announced.

They have forecast that a 15 per cent to 20 per cent weakening of property prices next year is 'very conceivable' because of the new policy.

Luxury homes, typically the playground of foreigners and investors, are likely to bear the brunt of slumping prices, but new mass-market units should still see a healthy demand from Housing Board upgraders, they added.

'On a philosophical note, locals may now feel less aggrieved, given a more level playing field,' the analysts said.

UOB Kay Hian: A sharp slowdown in demand

UOB Kay Hian analysts expect that prices will slide by 10 per cent to 15 per cent over the next year.

They also predict that the number of private homes sold each month will slide by 25 per cent to 30 per cent next year.

'The move was unanticipated in the light of the increasingly uncertain global macroeconomic environment,' they noted last Thursday.

'However, the recent pickup in the primary home-buying activity may have prompted the Government to take these steps after the review of its housing policies that were a hot issue in the last elections.'

The move will act as a strong deterrent for foreign buyers as their transaction costs would increase by 10 per cent overnight, UOB Kay Hian added, with the high-end segment likely to be the most affected.

Before these measures were rolled out, it had expected property prices to slide by 8 per cent to 10 per cent next year.

Goldman Sachs: Residential property market will enter a 'state of paralysis'

Goldman Sachs believes private home prices will fall by 15 per cent over the next 18 months, with the high-end segment facing more immediate pressure.

This is because foreign buyers and permanent residents account for 44 per cent of sales in the high-end sector, which includes areas such as Sentosa Cove and Districts 9, 10 and 11.

Each of the important drivers of demand - foreign buying, job creation and credit availability - will likely see signs of softness over the next year, the analysts noted.

'While credit is relatively cheap, it is not as readily available, with banks more conservative on valuations and equity term loans,' they said.

Their conclusion - the residential property market will go into a 'state of paralysis'.

OCBC Investment Research: New measures are 'fairly onerous'

OCBC Investment Research said property market observers had expected the Government to introduce new rules to curb demand for property among foreigners after the election, when both immigration and property prices became hot-button issues.

But as the euro zone debt crisis worsened and economists warned of slower economic growth in Singapore next year, few people thought the Government would push ahead with more property cooling measures.

Now that it has, OCBC analysts forecast that private home prices will fall by 10 per cent to 20 per cent over the next two years.

The measures are 'fairly onerous', they said, given that foreigners and companies accounted for a fifth of all private home sales so far this year.

'We expect a negative knee-jerk share price reaction for the developers,' they added.

yasminey@sph.com.sg