Report: Big Fall in Property Prices Unlikely

Source: Business Times – 7 December 2012

It would take an interest rate shock or poor GDP growth, or both, to bring down private property prices here noticeably over the next five years, a study has said.

Analysts had been anticipating that prices would fall as a record supply of land comes on stream and as the US Federal Reserve tightened monetary policy.

It is forecasted that prices would rise by about 8 per cent by the end of 2017 based on the central scenario from a modelling. The report also said that not all of the government’s cooling measures have been effective in bringing down prices, even if they have dampened transactions temporarily.

If government land releases stay at the same “rapid pace” of around 16,000 units each year, prices will come down around one per cent by 2017, the report said, which indicates that an oversupply is unlikely.
However, if this scenario coincides with a meaningful GDP or interest rate shock, prices would obviously fall much more.

A GDP shock is defined as a scenario where output expands by a total of 5 per cent over the next five years, and assuming that loans and the Straits Times Index grow at the same pace. Property prices will drop 16 per cent under this scenario.

Describing such a development as “unlikely” but “not impossible”, Credit Suisse said the bank had predicted that GDP will shrink by more than 9 per cent in the scenario of a full-blown eurozone break-up.
But if nominal output can grow by 7 per cent each year, with the same assumptions, prices will surge 23 per cent by 2017.

As for interest rates, Credit Suisse expects prices to fall a cumulative 14 per cent between 2013 and 2017 if the Singapore Interbank Offered Rate rises to 7 per cent in that time.

It said rates have not reached that level since the 1998 Asian financial crisis, and there has to be a very strong growth or a sharp pick-up in inflation in the US economy to see such a high rate returning, due to the close links between the US and Singapore economies.

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