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    Jun 23, 2015

    10% drop in private home prices seen here

    PRIVATE home prices in Singapore could fall a further 10 per cent from current levels over the next two years, French bank BNP Paribas said in a research report yesterday.

    Although prices have fallen 5.5 per cent from their mid-2013 peak, BNP Paribas said that a "closer look at valuation metrics and underlying drivers" shows the market has further to correct before a bottom can be called.

    The bank said that the Government is unlikely to unwind the total debt servicing ratio cap, given its effectiveness in curbing property demand and supporting long-term financial stability, while households here face further deterioration in their disposable income, with local interest costs set to rise in tandem with United States rates.

    The pace of increase in interest servicing will likely exceed that of income growth, said the bank.

    These are key constraints to the revival of property demand in Singapore and, by extension, the outlook for prices, it said.

    "Our central case is for a relatively orderly unwind. Maintenance of 5 per cent per annum household income growth and a two-year period of correction (based on previous property cycles) mean that prices need to fall by 10 per cent over the coming two years to lower the price-to-income ratio to 8.5 times," said the bank.

    The continued fall in property prices will have direct consequences for consumption growth, said BNP Paribas.

    "Such a decline will push up loan-to-value ratios and force households to inject fresh capital into their mortgages when they attempt to refinance, further constraining private consumption in the coming years."

    The bank added that another factor, tighter immigration policies, have also had a detrimental impact on demand for housing.

    However, Nomura believes that next year, Singaporean tenants could turn buyers and landlords could be motivated to sell - possibly resulting in higher resale transactions as well as demand for completed units in developers' inventory.

    On the buyers' side of things, Nomura notes that monthly cash outlays could be lower than monthly rent payments next year. This is because the Central Provident Fund Ordinary Account contribution for Singapore workers will be higher and can be used to service mortgages.

    Sellers, on the other hand, are likely to be motivated by a combination of rental declines, higher mortgage rates and higher property tax.