Home prices are slated to fall this year. Question is, by how much?

By The Folks @PropTalk - January 4, 2012 1 Comment

Prices of private homes are poised to fall this year. This was foreshadowed in the official flash estimates for the fourth quarter of last year which showed a slowdown in growth.

Urban Redevelopment Authority's private residential property price index rose a mere 0.2% quarter-on-quarter in Q4 2011, its most anaemic growth in 10 quarters since the index bottomed out in Q2 2009.

From the 15.8% q-o-q increase in Q3 2009, the index has now moderated for nine consecutive quarters, according to CBRE's analysis. The 0.2% q-o-q hike in Q4 was lower than the 1.3% q-o-q rise for Q3 last year. For the whole of 2011, the index rose 5.9% - a marked slowdown from the 17.6% jump in 2010.

Most market watchers say it is a given that prices will go down this year, amid the weaker economic outlook and poorer sentiment, especially after the introduction of the additional buyer's stamp duty (ABSD) last month.

"Developers know they need to cut prices but the difficulty is in gauging how much. If they don't cut enough, buyers are not going to act. But if they give too much, there's always a fear that buyers will expect a bit more. What you want to do is to give enough for the fence sitters to come back into the market. Despite the weaker economic outlook, there's still a lot of cash and liquidity in the market," says Knight Frank chairman Tan Tiong Cheng.

DTZ's head of Asia Pacific research Chua Chor Hoon predicts a 10 - 15% drop in URA's overall private home price index in 2012 citing the ABSD which took effect on Dec 8 and the economic slowdown. The luxury housing segment, where there are more foreign buyers, is expected to take the biggest hit given the top ABSD rate of 10% levied on their residential property purchases.

CBRE executive director Li Hiaw Ho expects overall demand for new private homes to be trimmed by 15 - 20% this year.

"Price of luxury/prime condos may fall by 10 - 15% in 2012, and the mass-market condos, by 5 - 10%," he added.

URA's flash estimates show that the price index for non-landed private homes in Outside Central Region (OCR) - where mass-market condo projects are located - was the star performer, though it has also dimmed somewhat. It rose 0.6% q-o-q in Q4 last year, a slower rise than the 2.1% increase in Q3 2011. The full-year 2011 increase of 7.7% was also slower than the 15% climb in 2010.

Prices of non-landed private homes in OCR increased the fastest as demand was supported by HDB upgraders as well as investors, notes DTZ's Ms Chua.

Credo Real Estate executive director Ong Teck Hui notes: "The strong run in OCR market has led to their current (Q4 2011) prices being 28.3% above their pre-financial crisis peak in 2008, while prices in Core Central Region (CCR) and Rest of Central Region (RCR) are only 6% and 15.9% higher than their respective 2008 peaks."

The price index for non-landed homes in CCR - which includes the traditional prime districts, financial district and Sentosa Cove - appreciated 0.5% q-o-q in Q4, following a 0.7% gain in Q3. The full-year 2011 increase was 4%, significantly lower than the 14.2% rise in 2010. The index for RCR for Q4 was unchanged from the preceding quarter, taking the full-year appreciation to 4.4%, after rising 17.6% in 2010.
Source: The Business Times

Most market analysts have said that prices for mass-market private homes will only fall by between 5 to 10% this year. However, the wife and I will go on a limb here by saying that we think mass-market home prices will drop by more than 10%. This is because:

1. More mass-market projects are expected to be launched this year, adding to the rather substantial inventory of launched but unsold units in the market.

2. The furious pace in which the Government is releasing land parcels through its Government Land Sales (GLS) scheme - most of these are slated for mass-market homes or ECs.

3. The new additional buyer's stamp duty (ABSD) rule stipulating that all land parcels bought by developers have to be built and fully sold within 5 years - this is likely to put more downward pressure on home prices.

4. The ramping of supply of HDB flats (especially BTO) and easing of HDB flat purchase criteria (income ceiling increase, higher allocation for second-time buyers etc) may mean that some demand for mass-market private homes will be siphoned off to HDB flats.

Only time will tell if our observations are correct or just a load of bull...

But what do you think?


1 comment to ''Home prices are slated to fall this year. Question is, by how much?"

  1. If the population growth in halted, these predictions would very likely materialize. However, I am expecting the government to open the floodgates to immigration again once the local population has been 'appeased' with a HDB flat. There's talk of importing another 1.5 million people. That will surely create demand; and the 10% ABSD for foreigners will surely encourage them to consider becoming a PR. Just a thought.