S'pore property prices to decline 12.5% in 2012

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The prices of Singapore’s residential property will decline by 12.5 percent this year and a further 8 percent during 2013 according to a new report from Bank of America Merrill Lynch.

“We maintain our view of a 2012 inflection point for residential pricing driven by excess supply, demand moderation and slowing economic growth,” noted the report which was published today.

“We forecast prices to fall 12.5 percent in 2012 and 8 percent in 2013 and would avoid exposure to residential developers. Despite recent price declines, we think it is too early to turn positive and would wait for evidence of a physical market correction before re-visiting the sector.”

Commenting on the latest attempts to cool the market which were introduced in early December, the authors of the report said: “While the first rounds of cooling measures did not succeed in bringing prices down, they did slow the pace of price acceleration. We believe the introduction of the additional buyers stamp duty will tip the scale and put a dent on investment demand, particularly from foreigners who account for 20 percent of volumes. We expect the measures to accelerate pricing declines.”

Bank of America Merrill Lynch had previously forecast a 7.5 percent decline of residential property prices during 2012 and 10 percent in 2013. The company is now predicting a combined 20 percent drop during the next two years.

The company is also predicting substantial oversupply in the private market during the next four years.

“We believe the high-end will be impacted more severely from a reduction in foreign participation while mass-market will be hit by affordability concerns and HDB policies. Historic high supply will easily absorb any pent-up demand. During 2012-2015, we expect 60,000 new private homes to be delivered, equating to 15,000 new units per annum (70 percent above the 15-year historic average). Together with HDB supply, we estimate an addition of 150,000 units (+13 percent) to housing stock. Even after we account for estimated pent-up demand of 14,000 units, we see oversupply of up to 25,500 units in the private market by 2015, hence putting pressure on prices.”

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