Friday, December 21, 2012

When Singapore property prices will fall?

Singapore private residential property prices in Singapore have risen 56 percent since 2009 and most analysts expect this upward trend to continue into 2013 even a flood of completed units are entering the market and economic outlook is gloomy.

Although Singapore's private home sales sharply declined in October and November 2012 (44 percent month-on-month fall in November), these were declines from very high sales figures. So total sales in 2012 are sharply up compared to the all year sales in 2012.

So when will Singapore property prices fall? The answer is actually simple, when the main fuel in the fire dries up: cheap, printed money! So Singapore property prices will decline when the interest rates goes up (even to the normal levels) or maybe the economic condition deterioration accelerates. On the other hand, a large inflow of completed supply will probably not result in fall in prices alone but will at best keep the prices flat.
A large supply of newly completed residential property combined with slower influx of immigration will depress rental yields. In fact, plagued with a high number of new properties entering into market and less number of tenants to taking them up, average unit monthly rent dropped by 1.0%, from $3.88 psf in Q3 to $3.84 in the first two months of Q4 2012.

But low interest rates will still give property investors holding power even if this means more properties will stay vacant. In fact, vacancy rate is increasing. It has climbed to 5.9% in Q2 2012 and from there climbed up to 6.1% in Q32012. The rate will probably increase more as more and more units are entering market to compete for demand which is almost completely fed by immigrant foreigners.

Singapore private residential properties Vacancy Rate against the Property Price Index (PPI)
Singapore private residential properties Vacancy Rate against the Property Price Index (PPI)
Source : Vacancy Rate and PPI
And this is where the danger is: It is highly probable that property investors will hold onto their investments as the yield detoriates and they will probably do this even the cash-flow from property turns negative (rents fall below monthly mortgage payments). And at this situation, when interest rates increase even to normal historic levels or economy significantly goes down and retrenched foreigners leave Singapore, investors will fall into a large negative cash flow situation. Since 37% of private residential property in Singapore were sold to foreign and local investors in the first 9 months of 2012 alone, many investors who keep more than 1 property will feel the heat. And with an already slowly bleeding cashflow, they may suddenly rush to exit door altogether.

This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material.  Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.

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