DBS sees ‘pre-emptive’ policy response to curb higher property prices

DBS analysts note that the strong performance of the Singapore property market in Q4 and the strong presales at the launch of Normanton Park (above) have caught the eye of the government. 

Updated from : The Business Times, 20 Jan 2021

SINGAPORE authorities may act pre-emptively to curb higher property prices, said DBS Group Research.

The analysts said that while a steady 2 to 3 per cent annual increase in the Singapore property price index (PPI) in line with household income growth is well supported by fundamentals, an acceleration in excess of 5 per cent will tip the market into “bubble territory”.

This will further pressure household affordability ratios, wrote DBS analysts Derek Tan, Rachel Tan, Dale Lai and Geraldine Wong in a research note on Tuesday.

“We believe any policy response will likely be pre-emptive in the current cycle rather than reactive, in order to prevent a further escalation in property prices in 2021,” they said.

Possible policy changes include a further tweak in the additional buyer’s stamp duty, especially for investors and foreigners, as it has shown to slow the pace of price increases, DBS said.

A further shortening of mortgage tenures or loan to values for second homes and beyond, should also be effective to counter the impact of ample liquidity and a low interest environment, which may have lifted asset prices higher over the past couple of years, the analysts added.

Based on past performance, listed developers such as CapitaLand, City Developments Limited and UOL Group have typically traded close to the PPIs, DBS said, adding that the hawkish stance maintained by the government may remain a general overhang for the developers, especially in the near term.

That said, the listed developers have been prudent in their land-banking strategy and have sold a good portion of their unsold residential inventory on their books, the analysts noted. Moreover, the pivot towards real estate sectors that generate more recurring income such as hospitality, commercial and industrial in the past few years could imply that the financial impact of any potential policy tweaks has been mitigated, DBS said.

Separately, while the median transacted price has remained fairly stable in recent years, the analysts have observed a reduction in median home sizes and per square foot (psf) prices remaining high.

This trend is seen in the robust presales recorded at the weekend launch of Normanton Park condo, where close to 600 units were sold out of 1,862 available units, at an average price of S$1,750 psf. However, the analysts noted that about 80 per cent of the units sold during the launch were one-bedroom and two-bedroom units, ranging between 49 square metres (sq m) and 68 sq m. This trend, if left unchecked, will mean that upgraders will continue to “trade-up” their lifestyles to smaller homes, DBS said.

“Given current price trends, we can’t help but think that the bigger apartments are starting to be out of reach for the median household. Therefore, a possible tweak, in our view, could be an upward adjustment in the average minimum home size in new developments.”

This would result in developers rethinking land bids and tempering further price increases, the analysts said.

In its flash note on Tuesday, DBS also noted that the strong performance of the Singapore property market in Q4 and the strong presales at the launch of Normanton Park – despite the Republic entering the worst recession in 20 years – have caught the eye of the government.

This comes after Deputy Prime Minister Heng Swee Keat and Minister for National Development Desmond Lim separately highlighted on Monday that the government is monitoring the property market closely.

In his speech at the Real Estate Developers’ Association of Singapore’s 61st anniversary celebration, Mr Heng noted that the Singapore government would like to ensure that the local real estate market “remains stable”, to enable young Singaporeans to “own their homes and fulfil their aspirations”.