Should everyone be happy with falling private home prices?

And will the cooling measures be relaxed by 2015?

According to URA, overall, the private residential property index fell 2.7 points from 214.3 points in 4th Quarter 2013 to 211.6 points in 1st Quarter 2014. This represents a decline of 1.3%, compared to the 0.9% decline in the previous quarter.

Prices of non-landed private residential properties in all market segments declined in 1st Quarter 2014. In Core Central Region, prices fell 1.3% after declining 2.1% in the previous quarter. This is the fourth consecutive quarter of price decline in this segment. Prices in Outside Central Region decreased for the second consecutive quarter, by 0.3%, compared to the 1.0% decrease in the previous quarter.

Singapore Business Review compiled the analyses of these experts to find out if the drop in home prices is something everyone must celebrate.

Chia Siew Chuin,  Director of Research & Advisory, Collier's International:

URA’s flash estimate for 1Q 2014 shows that prices of private homes in Singapore are firmly on the downtrend. The price index fell by a faster 1.3% quarter-on-quarter (QoQ) in 1Q 2014, after a decline of 0.9% QoQ in the preceding quarter.

The decline in private home prices for two successive quarters is in line with the slower transaction activities in the primary and secondary sales markets and is an evident sign that the multiple dosages of the government’s cooling measures and particularly the Total Debt Servicing Ratio have been effective in arresting price growth and steering the private residential market towards stability.

With affordability being the main concern of homebuyers, developers were seen dangling various sweeteners to attract buyers. These include early-bird discounts, partial absorption of stamp duty, furniture vouchers and direct price discounts. With developers pricing their new projects attractively to generate sales amid waning demand, price declines were registered.

Given homebuyers’ persistent price sensitivity and the reduction in their purchase budget under the strict financing rules of the TDSR, prices of mid- to high-end homes in the Rest of Central Region (RCR) and Core Central Region (CCR) showed marked declines amid thinning market activity. Prices of non-landed homes in the RCR buckled 2.8% QoQ, reversing the 0.4% growth in 4Q 2013, while prices of non-landed homes in the CCR fell for the fourth consecutive quarter by 1.3% QoQ.

Prices of non-landed homes in the Outside Central Region (OCR) slipped by a marginal 0.3% QoQ following 4Q 2013’s 1.0% decline, as homebuyers continued to be drawn to the relatively more affordable mass-market homes, thereby providing some level of support for prices.

The subdued market in the first three months of 2014 appears to have set the tone for the rest of the year.

Notwithstanding the expected improvement in buying volume which is in line with new launches in the pipeline, there appears to be little respite for the private residential property market at least in the short term. This is in view of the continued enforcement of the cooling measures, tentative recovery of the global economy, as well as longstanding concerns of potential interest rate increases and a mounting supply of homes. With little stimulus to buy in light of various headwinds, a buyer’s market is expected to persist.

Nonetheless, selected launches have sold well, indicating that with the right marketing and pricing formula, underlying demand can translate into sales. This is expected to provide some level of support for the market even as developers vie for a smaller piece of the housing market pie.

Overall, private home prices are expected to continue to soften, with the full-year decline possibly in the region of 5%-8%. 

Alice Tan, Associate Director & Head of Consultancy & Research, Knight Frank Singapore:

Market exuberance for private homes has been very much tempered by the existing property cooling measures and the Total Debt Servicing Ratio (TDSR) framework.

Private home prices continue to fall, as transaction volume of private homes in the second half of last year was approximately 60 per cent lower than in the first half of 2013.

The TDSR has led potential property buyers to become more sensitive to the price quantum. Recognising the slowing market activity and the importance of ‘pricing it right’, more developers are reviewing their marketing and pricing strategies to entice buyers, with some looking at reducing unit sizes or adjusting prices on a per sq ft basis.

Based on 4Q 2013 URA statistics, there is an unsold inventory of 32,080 units in the pipeline island-wide. This further increases the imperative and incentive for developers to price new launches attractively to achieve quicker sales.

The market is currently at an ‘inflexion point’ in terms of prices, and the downward fall could persist towards the second half of 2014 as the property cooling measures and TDSR ruling continue to bite market sentiment.

Prices in the CCR are expected to fall by another 2 to 3 per cent in the next 3 quarters this year, with an estimated 3 to 4 per cent decline in 4Q 2014 y-o-y.

Price declines in the RCR could slow in the second half this year, with an overall decline of 4 per cent by 4Q 2014 y-o-y. The new sale segment could be the more resilient market segment given its dual attributes of close proximity to city centre and lower prices compared to the high-end new sale private homes in CCR.

For OCR, we expect prices of mass market homes to fall by another 2 to 3 per cent in the next 3 quarters this year, with an estimated 3 per cent decline in 4Q 2014 y-o-y. The moderation in HDB resale flat prices would inevitably impact on price trends for the mass market private homes segment.

Assuming that current policies remain in force to year end, overall private home prices is envisaged to decline by an average of 3 to 4 per cent in 4Q 2014 y-o-y.

Tricia Song, analyst, Barclays Singapore:

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.

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 midend 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.

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.