Singapore Home Prices To Drop For First Time Since 2016 As Recession Nears

A flash estimate by the Singapore government has shown a 1.2 percent decline in the private residential property index, with experts predicting home prices to fall further as the city enters its first recession in two decades.

The Urban Redevelopment Authority (URA) on Wednesday said the private residential property index decreased by 1.8 points, from 153.6 points in the fourth quarter of last year to 151.8 points in the first quarter of 2020. This URA noted a decrease of 1.2 percent in its measure of private home prices during the first three months of this year, compared to 0.5 percent increase in the period from October through December.

Tricia Song, head of Singapore research for Colliers International, said that should the URA’s projected drop of 1 to 3 percent in housing prices during 2020 be realised, it would be the first year of decline for the city’s private housing market since 2016.

According to the URA, prices of non-landed private residential properties in central Singapore decreased by 1.5 percent, compared to a 2.8 percent decrease in the previous quarter. Prices in the rest of the central region dropped by 0.5 percent, the URA announced, compared to a 1.3 percent decrease in the last quarter of 2019.

Prices outside Singapore’s central region decreased by 1 percent, compared to a 2.8 percent increase in the previous quarter. The URA said prices of landed properties fell 1.7 percent in the first quarter of 2020, after rising 3.6 percent in the fourth quarter of 2019.

Prices May Prove Resilient

“Buyer sentiments were affected by worries about the impact of COVID-19 and weaker economic growth in 2020. Year-on-year, overall property prices are still up 2.2 percent,” said Wong Xian Yang, Cushman & Wakefield’s senior research manager for Singapore and Southeast Asia.

“The steeper fall in CCR [Singapore’s Core Central Region] could have been influenced by sales at The M, which sold 389 units at a median price of $2,439 per square foot in the first quarter of 2020. This is relatively lower compared to many CCR launches, which are selling above $2,800 per square foot”.

Wong continued: “Going forward, prices are expected to trend lower as Singapore heads into a recession. Buying sentiments are expected to remain muted over the short term until uncertainty in the labour market eases. However, prices may prove to be more resilient as compared to previous recessions. For example, during the Global Financial Crisis, overall property prices fell by 24.9 percent over four consecutive quarters.”

Chinese Home Buyers Absent

Desmond Sim, head of Southeast Asia research for CBRE, agreed that the decline of 1.5 percent in central Singapore was driven by the sale of The M. He said that developer Wing Tai Holdings’ competitive pricing for the project contributed to the downward adjustments.

“Moving forward, we expect developers to be more flexible in their pricing expectations in reaction to the COVID-19 outbreak, especially when showflats would have to take into consideration the limitations behind the enhanced social distancing measures. Already, the [Ministry of Trade and Industry] has projected a GDP forecast of -1 to -4 percent for 2020, signalling that the economy may enter into a recession this year,” said Sim.

“While we expect demand for housing to remain, current economic sentiments may put some buyers’ decisions on hold. Among all regions, the CCR might see larger adjustments due to the high inventory of project launches for sale, and the slowdown of Chinese home buyers. For these reasons, CBRE Research believes that the residential property price index could correct by 5 to 8 percent in 2020 amidst slower economic growth.”

Job Security Returns

Song, of Collier’s Singapore, said the URA’s data showed home values in central Singapore at 4.1 percent lower than their latest peak in the third quarter of 2018 and 6.4 percent below the index’ record high in the first quarter of 2013.

“Transactions have tapered off sharply in March from a strong February, as the effects of the COVID-19 are starting to reverberate through the economy and hurt sentiment. Based on caveats downloaded on 1 April, 2020, developers sold 528 new homes (excluding ECs) in March 2020, down sharply from the 947 units in February. Secondary transactions were also down, at 328 units in March, from 436 units in February,” Song said in a statement on the URA estimates.

“Based on advance estimates from the Ministry of Trade and Industry on 26 March, Singapore’s Q1 GDP contracted by -2.2 percent YOY and -10.6 percent QOQ (seasonally adjusted annualized). The MTI forecast Singapore to head into its first recession in two decades, putting 2020 growth in the range of -4 percent to -1 percent. The (Monetary Authority) has warned of job losses and slower wage growth as recession looms. Job security is one of the key drivers for home purchases.”

Length of Pandemic Decisive

Song pointed out that with home prices highly correlated to household income and the economy, private residential prices could decline 1-3 percent in 2020, in line with the economic contraction.

“The projected decline in 2020 will be the first year of decline since 2016 (-3.1 percent),” she said. “We do not think prices will fall as much as the 25 percent over Q2 2008 to Q2 2009 due to the Global Financial Crisis as there was rampant speculation and loose credit prior to the GFC.”

Song continued: “The nine rounds of property cooling measures in 2009-2018 that have reined in speculation and price increases over the past three years were more sustainable, in our opinion. We also believe there is room for the government to ease or unwind earlier measures, which should lend some support to prices. That said, much depends on the length and extent of the COVID-19 pandemic.

“We now expect developers’ sales may fall to 8,000 units for the full 2020, compared to the 9,912 units in 2019.”

The URA flash estimates are based on transaction prices given in contracts submitted for stamp duty payment and data on units sold by developers until mid-March. The statistics will be updated on 24 April when the URA releases its full set of real estate statistics for the first quarter of 2020.