Why prices will not crash: CIMB | Singapore Informer

PropertyGuru.com.sg Singapore property prices are likely to decline – but not crash – by between 10 percent to 15 percent according to CIMB’s latest Cost of Living survey, published today.

Answering the question “Will my home price crash?” the report noted that government policy and buyers’ expectations are reasons for a weak residential property market, not unaffordable property prices.

CIMB said that property buyers are the clear winners in this cycle, with healthy household balance sheets and time on their side. Developers that took the initiative to court buyers with lower prices, have achieved healthy take-up rates thus far. This should bring on a gradual property price decline, not a crash. We expect a 10-15 percent correction over 2014-15.

“This is clearly a buyers’ market, with time and money on their side. Buyers are delaying purchases, with only 14 percent intending to buy a property in the next one to two years. Deterrents include expectations of falling property prices (39 percent) and policy restrictions (41 percent). Affordability, on the other hand, is high as the mortgage-to-income ratio is near historical troughs.”

CIMB also noted that property developers with substantial unsold inventories have taken the initiative to reduce prices. The response has been positive thus far, with Sky Habitat clearing more than 100 units since its re-launch at 10-15 percent lower prices.

Most buyers in the survey expect only a gradual fall in property prices. CIMB said this explains why the take-up rate shoots up when projects take price cut.

“This should encourage developers to gradually cut prices in the primary market and achieve a 10-15 percent price easing over 2014-15, not a crash.”

Government policies, the survey found, is another key deterrent to buying properties and remains the wild card.

“We believe that a gradual relaxation is possible when property prices have declined more than 10 percent,” CIMB noted.

Singapore mortgage-to-income ratio is near historical trough, the survey revealed. While private property prices have recovered at a rapid pace since 2007, household income for the top 20th percentile has kept up with it, with both registering a CAGR of 5.8 percent over the past six years.

“We believe that affordability is not an issue for most households and they have the ability to borrow to purchase properties, should they choose to.

“We believe that buyers are holding back their purchases as they wait for property prices to fall. That could leave us with a less-than-ideal situation of weak demand on top of rising supply with historically high physical completions over the next three years. However, developers are also aware of this phenomenon and are obviously worried.

“What is interesting is that most buyers in Singapore also expect home prices to fall only a little, and that is reflected in the signs of demand whenever developers re-launch projects at lowered prices.”

Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg

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