A number of analysts have predicted a drop in Singapore’s home prices due to a large supply of land coming onstream and tighter monetary policy from the US Federal Reserve. But a study by Credit Suisse that was reported in The Business Times predicts that prices will rise some eight percent by 2017.
“Contrary to the view of many, our analysis shows that prices will only correct marginally by 2017, if the government pushes out the supply of property as aggressively as it has over the last three years through its Government Land Sales (GLS) programme,” said Michael Wan, Analyst at Credit Suisse.
For private property prices in Singapore to come down, an interest rate shock and/or poor GDP growth is needed, according to the report. It added that while cooling measures have temporarily softened transactions, not all the curbs have been effective in reducing prices.
If the government continued to release land at the rate of 16,000 units each year, home prices will drop by around one percent in 2017, an indication that a supply glut will most likely not occur.
“However, if this scenario coincides with a meaningful GDP or interest rate shock, prices would obviously fall much more,” noted the report.
Credit Suisse defines GDP shock as a situation where output expands by a total of five percent in the next five years, provided loans and the Straits Times Index rise at the same rate.
Under this scenario, property prices would drop 16 percent. However, the financial institution believes that this is “unlikely” but “not impossible”.
Source : PropertyGuru – 7 Dec 2012