Property Market May Correct In 2015/2016

The property market here could correct significantly in 2015 or 2016, when higher interest rates are expected to coincide with a large increase in housing supply, economists said.

Citi economist Kit Wei Zheng said that property prices are likely to fall 10 to 15 per cent over the cycle in the next few years, which could materially reduce households’ net worth. Barclays economist Joey Chew, said she expected an even larger correction – 20 to 30 per cent in 2015 and 2016, which is when the US Federal Reserve is expected to raise its interest rate after tapering off quantitative easing.

Mr Kit also said that the housing supply in the pipeline should not be under-estimated, noting that the potential private housing supply till 2017 has risen to 32 per cent of the existing stock of private residential units. This will push vacancy rates up, especially since population growth is slowing. Ms Chew estimated that vacancy rates could surge to more than 10 per cent in 2015 and 2016 amid curbs on foreign demand, given that the secondary market has weakened following the government’s multiple rounds of macro-prudential measures to cool the property market.

On the demand side, overall home ownership levels have risen to 90 per cent from the 10-year low of 87 per cent at the end of 2010. This suggests that pent-up demand for housing to live in has already been met, Mr Kit added.

Both economists noted that the risks of rapidly rising household debt in Singapore are ameliorated by the fact that households are not just asset-rich but also cash-rich, but Mr Kit noted that property has accounted for almost 80 per cent of the growth in household net worth since 2006. “It follows that a fall in property prices in the next few years would also erode household net worth significantly,” said Mr Kit.