Singapore home property prices to rise faster over next 2 years, says Goldman Sachs

By Stanislaus Jude Chan / The Edge Singapore | December 14, 2017 3:57 PM SGT
SINGAPORE (Dec 13): Goldman Sachs says residential property prices in Singapore could beat previous expectations and increase by 5% per annum in 2018 and 2019.
Goldman Sachs had previously forecast that home prices would rise by between 1 to 3% per annum over the next two years.
The rosier outlook comes on the back of a 0.7% quarter-on-quarter improvement in residential property prices in 3Q17 – the first uptick after 15 consecutive quarters of decline.
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(Credit: Samuel Isaac Chua/The Edge Singapore)
“In Singapore, prices, policy and rates find an intricate balance, giving rise to new opportunities for growth,” says lead analyst Paul Lian in a report on Dec 6. “And with the cyclical upcycle well underway, the focus has shifted to developers with more active investments for outperformance.”
“The recovery is also creating more opportunities for developers in the residential segment, and yields should compress as the growth in capital values outpaces rental growth over the next two years,” he adds.
According to Goldman Sachs, home prices are set to be driven higher by a combination of declining inventories, higher land costs, pent-up demand, replacement demand from en bloc sales, and still low interest rates.
"Home sales have been sluggish since the Total Debt Servicing Ratio (TDSR) framework was introduced in June 2013, and near-term buying from pent-up demand over the last four years will be a key driver of home prices in the near-term,” says Lian.
“The baby steps to ease policies in March 2017 signaled the government’s more accommodative stance towards the housing market and home buyers that were previously on the sidelines returned,” he adds.
While upward pressure on home prices could see the government stepping in to implement addition demand-side property cooling measures, Lian believes there are “several factors mitigating the risk of a policy reversal.”
These include a high number of vacancies, which is expected to continue to place pressure on rents and rental yields. As of 3Q17, the number of vacant private homes stood at 30,136 – close to an all-time high. According to Lian, this implies a vacancy rate of 8.4%.
“Mitigating factors allay fears over a policy reversal...