3 biggest reasons why home prices are unlikely to crash next year

3 biggest reasons why home prices are unlikely to crash next year

No 'excessive' correction for headline prices.

According to OCBC Investment Research, barring a macro crisis, it does not believe headline prices will correct excessively (>20%) in 2014.

This is due to three reasons.

Here's more:

1) The direct impact of a physical oversupply (of homes which are already sold) is first on vacancy rates and subsequently on rental prices.

While falling rents will pressure home prices, we do not see many home-owners force-selling into a softening market given that a negative rental carry is the norm in Singapore historically and that the average individual balance sheet remains fairly benign.

2) The level of unsoldpipeline held by developers (which forms the primary supply) is currently at 36k units. This is lower than the 10-year historical average of 43k units and is not overly onerous.

While developers will likely ease prices ahead to move inventory, a fire-sale situation is unlikely to ensue given relatively strong balance sheets.

3) Finally, we believe the data currently point to a fairly high price elasticity of demand. That is, significant numbers of buyers will come into the market at every incremental price dip.

This is illustrated when CapitaLand introduced discounts at its 1715-unit d’Leedon in 1Q13 and subsequently saw 543 more units sold by 3Q13.

Similarly, developers which set lower prices at recent new launches (Sky Vue at Bishan and Thomson Three at Bright Hill Dr.) saw firm performances, despite the Jul-13 TDSR measures.


- wong chee tat :)