By Mr. Propwise
From the URA’s recent flash estimate of the 4Q2012 Private Residential Property Price Index (PPI), property prices have continued to defy gravity and have even accelerated quarter-on-quarter. The 4Q2012 URA PPI flash estimate hit 211.9 and was up 1.8% on a quarter-on-quarter basis.
Singapore property prices at an all-time high…
Based on analysis of the URA numbers done by the Singapore property research site PropertyMarketInsights.com, at the current levels the price index is 19.4% above the previous 2Q2008 peak, and 16.8% above the previous all time high in 2Q1996.
Figure 1 – URA Property Price Index (based on 4Q2012 flash estimate)
This estimated increase of 1.8% comes after last quarter’s 0.6% quarter-on-quarter increase, indicating an accelerating pace of price growth. It appears that the strength of property demand, supported by low interest rates, has outweighed concern over the recession in Singapore, worrying global economic situation especially with the troubles in Europe and weak growth in the US, and the dampening effect of multiple rounds of government measures.
…but is mainly supported by strength in the Outside Central Region
The rate of price growth differed across the various market segments. In the Core Central Region, prices of non-landed private residential properties increased by 0.8% versus an increase of 0.1% in the previous quarter. Prices increased by 0.9% in the Rest of Central Region (versus a 0.8% increase in the previous quarter), and increased by a remarkable 3.4% in the Outside Central Region, an acceleration from the 1.0% increase in the previous quarter.
Do note that the URA’s flash estimates are compiled based on transaction prices given in caveats lodged during the first ten weeks of the quarter. The actual second quarter statistics will be updated four weeks later, and past data have shown that the difference could be significant, especially when the change is small.
Will property prices go up or down in 2013?
Figure 2 – Change in Property Price Index (based on 4Q2012 flash estimate)
At the beginning of 2012, most analysts were expecting a fall in prices, and were divided on whether we would see a sharp decline as during the 1997-1998 Asian Crisis and 2008-2009 Financial Crisis, or whether it would be a more gradual decline as we saw during the 2000-2004 Post-Dotcom Bubble and SARs era. Instead, based on the 4Q2012 estimates the URA PPI is actually UP 2.8% in 2012, an unexpected outcome versus the initial predictions of a 5% to 15% decline in prices predicted by most analysts.
The question now hanging on most people’s minds is now: will property prices continue to rise in 2013? Certainly the re-acceleration of the PPI starting from the second quarter of 2012 was unexpected, but it should be noted that the 2.8% property price increase in 2012 is already a deceleration from the 5.9% in 2011 and 17.6% in 2012.
I believe that we will only see significant levels of price declines if there is an external crisis to cause a sense of panic, which we had in each of the previous three declines (e.g. Asian Crisis, Dotcom Bubble, Global Financial Crisis). This is because the abundant global liquidity situation and sustained low interest rates will continue to support Singapore property prices in the meantime.
Figure 3 – Straits Times Index (till Dec 31, 2012)
Since reaching a low of 2,738 points in June, the Straits Times Index (STI) has recovered to 3,167 points as of end December 2012, up 17.8% for the year and 3.6% versus the last quarter. If you believe that the stock market is a leading indicator for the property market, then we could see continued support for property prices in the coming quarters.
More cooling measures on the way?
The continued resilience of property prices despite the previous six rounds of government measures increases the probability of a seventh round of property measures to further cool sentiment. It is not clear right now whether a potential new round of cooling measures would comprise merely of refinements to the current measures (e.g. increase ABSD?) or be something brand new.
Will property prices keep going up? There are a couple of ways to think about this question. First, based on the Property Market Cycle Model of PropertyMarketInsights.com, we are in the Late Bull Stage of the market. This means that the upside potential risk is limited while the downside risk is significant. Second, while everyone believes that low interest rates will continue to prop property prices up, the large amount of upcoming supply could depress prices if demand is not able to keep up. Third, as I’ve mentioned before, unexpected crises (“black swans”) tend to occur when we least expect it, especially when everyone has become complacent. Finally, I believe property prices cannot continue to defy gravity forever, and that investors looking to buy property in this market should continue to be cautious.
By Mr. Propwise, author of Timing the Property Market.