Private-home prices to fall 7% to 10% by end-2017, says BNP Paribas

By Michael Lim / The Edge Property | February 4, 2016 10:00 AM SGT
Those who are in no hurry to buy their first home may want to wait a little longer. BNP Paribas forecasts private home prices will fall between 7% and 10% by end-2017. On an annualised basis, this translates into an average fall of 3% to 5% a year over the next two years, with prices stabilising only in 2018.
Home prices have fallen 8.4% from the peak in 3Q2013, according to URA flash estimates for 4Q2015. Eight rounds of property cooling measures, record supply and rising vacancy rates have combined to put further pressure on housing prices. Developers have been pleading for some of the cooling measures to be either tweaked or relaxed but, so far, the government has insisted that it is still “too early”.
“We believe the government will tweak the cooling measures only when private property prices have dropped 17% to 20% from its 3Q2013 peak,” says Chong Kang Ho, BNP’s head of research for Asean Property and Logistics, at a press conference on Jan 12.
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The rental market is expected to be even more challenging with a record number of 26,000 new homes obtaining Temporary Occupation Permit this year. Rental rates are expected to fall another 5% to 7%. With interest rates starting to climb, mortgage rates are expected to rise above 2%, to pre-crisis levels. This will further compress rental yields, which have been hovering at 2% to 3% since 2014, down from 3% to 4% in the period from 2011 to 2013. The vacancy rate is lingering at 8.5%, and is projected to climb to 9% next year and 10% in 2018.
“My biggest concern is that, as interest rates rise and rental rates fall, investors may find net rental yield insufficient to cover their mortgage payments, resulting in a negative carry,” adds Cheong. “If owners are unable to service their loans, more homes will be put up for mortgagee sale.”
Most at risk are those with a combined monthly household income of up to $7,000 who purchased an investment property in the recent market upturn when interest rates were at a historic low. If they are struggling to find a tenant or the rent achieved is less than the mortgage payment, they will have to top up the monthly payments, which means a depleting savings account, warns Chong.
Last year, most of the mortgagee sales were high-end residential units. This year could see a rise in mortgage defaults in mass market housing, given the negative carry scenario, he says.
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Reversing some of the cooling measures alone will not be enough. To further stimulate housing demand, the government will need to relax its immigration policy, adds Chong. Still, loosening of the immigration policy may not have the desired effect, as there are not enough jobs to attract the calibre of foreign talent needed to absorb the excess supply, he reckons.
The government may have made a slight miscalculation in the executive condominium (EC) scheme, a hybrid private-public housing programme, says Chong. The monthly household income ceiling for built-to-order flats and ECs was raised to $12,000 and $14,000 respectively. This is because some of the EC buyers now qualify for BTOs, further enlarging the pool of buyers in the BTO segment, he adds.
Chong believes developers may have to cut prices to move units in their EC projects. Prices could be adjusted from the current figures of between $750 and $800 psf to between $700 and $750 psf. As for new launches, he predicts prices will be in the $700 psf region.
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This article appeared in the City & Country of Issue 711 (Jan 18, 2016) of The Edge Singapore.