Home prices should continue crashing until 2015: Barclays

Don't expect government unwinding anytime soon.

The Singapore home price falls in 1Q14 are just the start of more declines throughout the next two years, according to Barclays Research.

The research firm predicts residential prices to fall 5% in 2014 and another 5-15% in 2015, with the government only moving to arrest the decline when prices fall 10-15% from current prices.

Here's the full analysis from Barclays Research:

Both private and public home prices continued to fall in 1Q14 for the second and third consecutive quarters, respectively. We see no respite for both volumes and prices given 1) the ongoing government curbs, 2) looming oversupply and 3) rising interest/mortgage rates in 2H15. Indeed, we expect fundamentals to continue to deteriorate until 2H15. We continue to prefer commercial REITs to residential developers on relative fundamentals and valuations with CapitaMall Trust, CapitaCommercial Trust and Ascendas REIT (all rated OW) remaining our top picks in the sector while we have UW ratings on City Developments and Keppel Land.

Both private and public home prices continued to fall in 1Q14. The Urban Redevelopment Authority's flash data for 1Q14 indicate that its index for private home prices fell 2.7 points to 211.6 in 1Q14, down 1.3% q/q and -0.8% y/y. This is the second decline after -0.9% q/q in 4Q13, bringing the cumulative decline to 2.2% since the peak. Private home prices are still 59% above the last trough in 2009. Public housing fared worse, falling for the third straight quarter for a cumulative slide of 3.9% from the peak.

Private home price declines were steeper for mid- to high-end homes. In the Core Central Region (CCR), which usually represents high-end homes, prices fell 1.3% after declining 2.1% in 4Q13. This is the fourth consecutive quarter of price declines in this segment, bringing the total decline of CCR prices to 3.8% since the peak. Prices of mid-end homes fell 2.8% in 1Q14 while prices of suburban homes – proxied by the Outside Central Region (OCR) – was relatively more resilient even as it decreased for the second consecutive quarter by 0.3% after its 1.0% decrease in the previous quarter.

We see no respite. Volumes have continued to fall with the developer volume down by 53% from a year ago to just 1,289 units for January-February. We expect no respite as the Total Debt Servicing Ratio (TDSR) rules in place since June 2013 continue to bite and as buyers get cautious on a looming oversupply. We maintain our negative stance on the Singapore residential sector as we estimate prices will fall 5% in 2014 and another 5-15% in 2015 as interest rates rise, coinciding with the peak in supply. We expect the vacancy rate to reach an unprecedented 9.9% by 2016. We believe that the government would only start unwinding measures when prices fall 10-15%, perhaps in 2015.

We prefer REITs to developers: Given the deteriorating fundamentals of the developers, we believe SREITs offer a better risk-reward profile due to 1) SREITs' 90-300bps yield spreads above historical norms and those of global peers and 2) our expectation of better fundamentals for commercial. (Click here for our special REIT report: Singapore REITs: Fill the gap; SREITs poised to catch up of 7 March 2014).