Real estate prices rose by almost 80 percent in Singapore between 2008 and 2013. Alarmed by the rapid increase in values, the government took several measures to cool the overheated property market.
The steps taken by the government worked well and, consequently, prices fell 4 percent in 2014 and then a further 3.7 percent in the next year.
The outlook for the current year? In January, Mr Ong Teck Hui, national director of research at premier real estate consultancy Jones Lang LaSalle, said that if the economic slowdown gathered pace, prices could drop a further 8 percent.
Impact of government measures
According to the Financial Stability Review conducted by the Monetary Authority of Singapore in November 2015, Singapore residential prices would have been 17 percent higher if not for the steps taken by the government.
The government was careful to ensure that first-time buyers who were Singapore citizens were not impacted by these measures. But Singaporeans buying their second or third homes and foreigners found that their transaction costs had undergone a sharp escalation.
But some say that the government's policies have worked too well, depressing prices and the real estate market more than necessary. In fact, when prices dropped in the last three months of 2015, it was the ninth consecutive quarter of falling property values.
This is the longest continual fall in the last 17 years.
Performance in the first quarter of 2016
Sale of new units in the prime residential market registered a sharp uptick in the first three months of the year. An estimated 500 units were sold, a 64 percent quarter-on-quarter and a 73 percent year-on-year increase.
These positive numbers were strongly influenced by the demand for residential units at Cairnhill Nine, a 99-year leasehold project with 268 units located in the heart of the Orchard area.
But other indicators in the property market remained negative. Gross rents in the prime sector fell 1.3 percent on a quarterly-on-quarterly basis while the luxury prime segment saw a decline of 2.7 percent over a similar timeframe.
The lacklustre showing is directly attributable to depressed economic conditions. The oil and gas sector, which has a large presence in Singapore, continues to be negatively affected by low prices and a large build-up of inventories.
Other economic indicators like industrial production, retail sales, and trade continue to remain dull.
Low population growth
The demand for residential property has been significantly affected by the government's policy to cut population growth to 1-1.5 percent since 2012 by reducing immigration.
But the supply of new residential units has continued unabated. A large number of projects have come up in suburban private residential areas and in public housing estates.
The excess of supply over demand also contributed to the fall in real estate prices.
The government had adopted a policy of restricting population growth as there had been public feedback that infrastructure and other amenities had not kept up with the increase in the number of residents.
Consequently, the government had stepped up the allocation of funds to mass rapid transit, healthcare facilities, and other projects for public welfare. The effect of these investments will be felt by 2017.
If the government relaxes its immigration policies, the resultant increase in population could lead to a rise in demand and consequently to property values firming up.
Prospects for the property market
Better economic conditions will serve to bring about a revival in real estate prices. In 2014, the economy expanded by 3.3 percent and this rate fell to 2 percent in 2015. This year, the government expects growth in the band of 1 percent to 3 percent.
In his annual budget speech for the year, Singapore's Finance Minister, Heng Swee Keat, announced that the government would spend S$73.4 billion, an increase of 7.3 percent over the previous year. The increased allocation of funds to public infrastructure and housing projects is expected to give growth a much-needed push.
But despite these efforts, the economy could continue to face several constraints. A weaker global economy and a contracting Chinese market are cause for worry. Electronics and other manufacturing units in Singapore are feeling the ill-effects of declining demand.
The government has announced a slew of measures to help small businesses weather the downturn. Corporate income tax rebates have been raised to 50 percent from 30 percent of tax payable, with a cap of S$20,000 for each year for 2016 and 2017.
The marine sector and some other industries that have been severely affected have been given concessions in the form of a deferment in foreign-worker levy increases for holders of work permits.
But will all these measures have the desired effect on real estate values?
A recent NUS-Redas Real Estate Sentiment Index survey finds that 90.6 percent of respondents hold that the biggest risk to the Singapore property market is the slowdown in the global economy.
The survey, conducted jointly by the Real Estate Developers' Association of Singapore and the National University of Singapore found that in the fourth quarter of 2015 the composite index of current and future sentiment stood at 3.5 on a scale of 0 to 10. This reflects a slowdown in the property market.
Over 64 percent of respondents indicated that, in their view, the property market will face further tightening in terms of liquidity and finance. Job losses and a decline in the domestic economy will also pull the market down.
One factor that could possibly give an impetus to real estate prices is the withdrawal of the government's measures to stabilise property prices.
Referring to the government's stand on this issue, Finance Minister Mr. Heng clarified during the budget speech, "Based on the price level and current market conditions, our assessment is that it is premature to relax these measures."
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Istvan Loh Wye Lung is a professional FX trader. He spends his free time researching relevant investment opportunities and analysing the markets.