Residential softness to stay for another 2-3 years.

A reprieve came earlier in the year boosted by M& A for several property-related stocks, as transacted prices have softened and property stocks have been sold down.

According to OCBC Investment Research, this narrowed the discount to RNAVs for most property stocks as prices rallied.

However, despite the slight recovery in developers&rsquo share prices, most property stocks are still trading at substantial discounts to their book and RNAVs.

OCBC expects the softness in demand for Singapore residential properties to stay for a while at current transacted prices, However, OCBC believes that weakness is also an opportune time to positions for long-term recovery.

Home prices in Singapore could fall by 20 percent between 2014 and 2016 as economic restructuring, tighter population policies and property measures continue to weigh on the real estate market, according to a Bank of America Merrill Lynch (BOAML) report in the media. We believe the fate of the market will depend very much on the direction of policy, particularly on restructuring, immigration and foreign workers, as well as the timing of the relaxation of strict property measures, wrote economist Chua Hak Bin in the report. He noted overly tight population policies will limit the number of a younger foreign workforce, and affect property prices. Maintaining the cooling measures would also " imply a greater negative impact from rising mortgage rates and persistence of housing distortions" . On the restructuring front, Chua believes Singapores move to a productivity-driven growth model, which is a long-term process, has produced mixed results. Notably, it has reduced the growth of Gross Domestic Product (GDP), while employment growth and total job creation is expected to moderate this year. We do not see the government reversing course, but a pause may be in order...as companies, particularly SMEs, are having trouble adjusting to the speed of the tightening, said Chua. Any potential relaxation of property cooling measures is likely to happen only in H2 2015, as cyclical property measures such as stamp duties and loan-to-value limits may be relaxed when US interest rates and Singapore mortgage rates start rising.     Muneerah Bee, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories email[email protected]   

 

Record-low interest rates cannot last forever.

The entire South East Asian region is awash with capital, thanks to record-low interest rates and a loosening of credit underwriting standards. But economists now warn against the rapid fivefold increase in Singapore&rsquo s household debt, which has expanded at a staggering rate in just a decade.

According to a report by ICAEW, the fast increasing rate of household lending has already caused concern in other Southeast Asian countries such as Thailand and Malaysia. A key risk of a rising-consumption economy is a thirst for yield, where in speculators tempted by high returns bet on property prices rising, increasing the risk of a property bubble building up.

The skyrocketing amount of household debt has prompted the Singapore government to intervene by introducing several rounds of property cooling measures, which will slow consumer spending and provide a gentle drag on growth in the short term.

&ldquo In moderation, household debt is useful in allowing people to stay afloat between jobs, or to spread a large purchase across several months&rsquo income. It also encourages the region to move from traditional export-driven growth typically seen in emerging economies towards a consumption-driven growth model, something already evident in Singapore&rsquo s move towards high value-added services,&rdquo noted the report.

But according to Mark Billington, Regional Director, ICAEW South East Asia, &ldquo It is important that economies with already high consumption rates take care to avoid artificially raising the standard of living. Allowing credit growth to offset weak wage growth in lower earnings groups may ultimately raise the number of non-performing loans. That, in turn, could result in increased risks of another financial crisis.&rdquo

ICAEW Economic Advisor and Cebr Director Charles Davis also noted that many banks got their fingers burnt by a sharp increase in non-performing business in the 1997 Asian Financial Crisis.

&ldquo Although reforms have been put in place &ndash including the transformation of economic and financial legislation, bank consolidation and increased capital ratio requirements &ndash post-crisis, many banks have ramped up their consumer lending. Given this, South East Asian economies need to maintain vigilance over lending standards so that they heed the lessons from the late 2000s financial crisis in the US and Europe,&rdquo he cautioned.