Published November 29, 2012

No correction in home prices after measures

By Mindy Tan

[SINGAPORE] No appreciable correction in overall house prices was seen in October, despite the latest round of cooling measures.

Prices of completed private apartments and condominiums (excluding executive condos) rose one per cent in October, fuelled by price increases in the suburban market.

Excluding small units, prices of suburban apartments rose one per cent while homes in the Central Region rose 0.9 per cent. Prices of small units (up to 506 sq ft) islandwide rose 0.6 per cent in October.

This is despite measures rolled out in October, which include a 35-year cap implemented on loan tenures alongside tighter loan-to- value (LTV) ratios.

Liquidity and herd mentality is driving the market said Chua Chor Hoon, DTZ head of APAC Research: "There is herd mentality in the purchase market. When sales volume is higher, buyers become braver. Sellers also ask for more."

The findings, which are based on October flash estimates of the Singapore Residential Price Index (SRPI) series, suggest that the macro-prudential levers implemented thus far have had limited effectiveness in mitigating house price inflation, said Lum Sau Kim of the National University of Singapore's Institute of Real Estate Studies (IRES) .

"Where the policy measures have worked is to attenuate house price volatility. The amplitude of monthly house price swings has reduced over time," she said.

The average absolute monthly change seen in the overall SRPI before the cooling measures were implemented was 2.6 per cent per month versus 0.9 per cent per month after the introduction of the measures in October 2009.

While prices of small units have been more volatile than those of the overall market, they too contracted after a policy targeting shoebox units was announced in September this year.

"We believe the control will continue to moderate small unit prices and volume going forward as it takes effect from Nov 4," said Prof Lum.

Lee Sze Teck, senior manager, training, research and consultancy at DWG, pointed out that given the SRPI tracks completed units, the sub-index for small units might register higher increases in the future, as more shoebox units are expected to be completed next year and in 2014.

The data also suggests that owner-occupiers were active on the resale market in October, said Mr Lee.

"If I'm looking for my own unit, I don't mind paying a bit more because I don't care about rental yields, whereas investors don't want to pay too much because it will affect the returns they get on their investment," he noted.

Alan Cheong, head of research at Savills Singapore, added that one of the reasons why the measures appear to have limited impact on suburban pricing is domestic liquidity.

"The measures seem to work in the core central region because they happen to coincide with the economic crisis in high net worth exporting continents. Suburban areas on the other hand have been driven mainly by domestic liquidity chasing returns," he said.

IRES also released the revised SRPI values for September, which showed that the sub-index for small apartments islandwide increased 2 per cent compared with August. Excluding small units, the sub-index for both the Central Region and Non-Central Region climbed one per cent. The overall SRPI climbed one per cent in September.