By Mr. Propwise

It’s that time of the year where I take a look back at what’s happened over the past twelve months, then try and say something intelligent about the future direction of the property market over the next year. But this year I’m particularly apprehensive, as 2016 was the year where the majority of forecasters failed to accurately call the most major events such as Brexit and the US Presidential Elections.

2016 was a continuation of “death by a thousand cuts.” After a 3.7% decline in the URA’s Property Price Index (PPI) in 2015, as of 2016Q3 we’ve seen another 2.6% decline in 2016 so far. This averages out to a less than 1% decline per quarter over 12 quarters since the peak in 2013Q3.

Contrast this to the 2008Q3 to 2009Q2 period where we saw a 24.9% decline over four quarters. The current period is more reminiscent of the 2000Q3 to 2004Q1 period where the market fell by an average of 1.5% per quarter over 15 quarters. We could be in for a long, slow and painful ride down, folks.

Honestly, if you read my Property Market Outlook from last year it’ll be largely the same, except with updated figures. This is because the market has continued on its gradual downward trend, and there have been no significant changes in this trend.

Policy standstill

We know the straw that broke the camel’s back was the MAS’ Total Debt Servicing Ratio (TDSR) framework introduced at the end of June 2013, which significantly limited the ability of buyers to lever up and buy property.

Another large deterrent to would-be property investors is the punitive Additional Buyers Stamp Duty (ABSD) imposed on second-time and higher Singaporean buyers and first-time PR and foreigner buyers.

Personally, I think the TDSR makes more sense than the ABSD, which is unnecessarily harsh and penalizes households who have genuine upgrading and investing demand. Let’s not forget that Singapore is a nation of homeowners (if I remember correctly around 90% of resident households own the home they live in), and property is one of the primary means by which Singaporeans accumulate wealth.

Figure 1 – Sadly, the STI has not gone anywhere over the last seven years (source: Yahoo Finance)

There are inter-generational equity issues to sort out if these rules are to be tweaked, but the current trifecta of stagnating stock prices (the Straits Times Index has had a flat return over the past seven years), property prices and real incomes means that a whole generation of middle income wage earners will find it difficult to accumulate enough wealth for a comfortable retirement.

How much further will the property market fall?

Despite the warning, threatening and finally pleading of the property developers and agents, the government is right – the correction of property prices so far has been moderate, with only a 10.8% correction over 12 quarters.

Figure 2 – Change in URA PPI since 2000 (Source: URA,

So the million dollar question is – what does the government think a “meaningful” correction is? It’s important because they’ve indicated the property cooling measures are here to stay until such a correction has occurred.

We can get some clues from the previous two corrections that occurred from 2000 to 2004 and then more recently from 2008 to 2009 during the Global Financial Crisis. During those downturns, the URA PPI corrected by 19.9% and 24.9% respectively. So if I had to hazard a guess, I’d say we’d have another 10 to 15 percent more downside to go before the government would deem the correction to be “meaningful” and start easing some of those measures.

3 reasons why the market will continue to be weak in 2017

There are three reasons why the current market weakness is likely to continue into 2017 and beyond.

First, the HDB Resale Price Index (RPI) has continued to be weak in 2016, although the price movements have been volatile over the past few quarters. A doubling of HDB prices since 2005 created a “wealth effect” that supported mass market prices as HDB flat owners could sell their unit at a high price and upgrade to a private condominium.

Now that HDB prices have flattened out, this effect may shift into reverse gear, where HDB owners (except the lucky few at prime areas such as Duxton) find it difficult to sell their flat at a good price, thus sapping demand from the mass segment of the market.

Figure 3 – URA PPI vs HDB RPI (Source: URA, HDB,

Second, large upcoming completions are likely to put pressure on both property prices and rentals, especially coupled with slower expected population growth as the government continues to be tight on the inflow of foreigners into Singapore.

Based on URA data, there are close to 44,000 units of private residential properties to be completed in the next few years. Looking at the breakdown of supply, 2017 will see completions of over 13,000 units per year, followed by close to 10,000 units in 2018. This is still above the yearly average of fewer than 10,000 units per year between 1996 and 2012.

Figure 4 – Upcoming private residential supply (Source: URA,

Finally, we should keep in mind that the root cause of the buoyant property prices is the protracted low interest rate environment after multiple rounds of Quantitative Easing (QE) by the US Federal Reserve post the Global Financial Crisis. This has propped up the prices of most yield-based assets, including property.

Figure 5 – US Fed Funds Rate (

While the Fed raised its benchmark federal funds rate in December by a measly quarter of a percent, market expectations are for continual hikes into 2017, albeit at a gentle pace.

How good can property returns be in an era of rising interest rates?

Figure 6 – URA PPI vs 3-Month SIBOR (Source: URA, MAS,

But even if interest rates do not shoot up right away, borrowing costs can still rise as banks charge a higher margin (SIBOR + X%) to give themselves a buffer against rising interest rates and greater mortgage defaults.

And when borrowing costs rise, the stress on heavily leveraged buyers will go up, and the attractiveness of property itself as an asset class also decreases as the net cash flow it provides falls. This will be exacerbated if rentals are also under pressure at the same time, which they are.

Figure 7 – Rental growth has been negative for 12 straight quarters (Source: URA,

Why have rentals been falling? It’s just simple supply and demand – supply has been growing quickly as newly completed developments flood the market, while demand has been weak as economic and wage growth is weak, unemployment creeps up and the government keeps a tight lid on immigration. Hence the vacancy rate of non-landed residential units has now creeped up to 10%, putting a lot of pressure on rentals.

Figure 8 – Vacancy rates have crept up to 10%, since the lows of 5% in 2010, and are at a level not seen since 2005 (Source: URA,

I’ve talked about this before, but I think many property buyers are still blasé to the impact of rising mortgage rates (whether from rising interest rates or banks raising their lending spread) on their ability to meet their monthly payments.

So what should buyers and investors do?

I do not like making forecasts about when or how much property prices will fall, because I believe the exact timing and magnitude of property price movements is dependent on too many unknowable events. Instead, I prefer to base my property investment decisions (there are different considerations if you are buying for own stay) on my analysis of where we are in the cycle and what has historically been the best action to take at each point.

Members of Property Market Insights will know that we are currently in the twelfth quarter of the Early Bear stage of the Property Market Cycle Model. This means that the best thing to do is to sit tight and wait for further correction before entering the market. Patience is a virtue in the current stage of the market.

The time to buy will come when we enter the Late Bear and Early Bull stages of the market. You might have to wait for years, but why rush to lose money?

Here’s wishing everyone a Happy New Year and a Healthy and Wealthy 2017!

By Mr. Propwise, the founder of Singapore property blog, which aims to help people make better real estate buying, selling, renting and investing decisions.

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