Singapore home curbs likely to fuel fire sales

Owners under pressure to service mortgage loans amid a decline in prices and rentals

PUBLISHED : Wednesday, 19 November, 2014, 4:41am
UPDATED : Wednesday, 19 November, 2014, 4:45am

Singapore's housing market may face "fire sales" with mortgage defaults as the government's property curbs hurt home sales and prices, the city state's second-biggest developer said.

City Developments, which built luxury condominiums such as St Regis Residences near the Orchard Road shopping belt, said the high-end market in particular remained subdued, with developers holding back the sale of new projects. Rents, especially for high-end homes, were on the decline, it added.

"If this trend continues, with prices dipping more, some mortgage borrowers affected by lower rentals may have difficulty servicing their loans, possibly leading to forced fire sales," the company said, adding that the curbs would "weigh heavily on the market".

The government said last month that there was some distance to go for Singapore's home prices to achieve "a meaningful correction", signalling the longest stretch of declines in housing values since the global financial crisis might not be enough to prompt the city to ease its curbs.

Singapore's private home prices fell 0.7 per cent in the three months to September, the fourth quarter-on-quarter drop, bringing the slide in the past year to almost 4 per cent. That was the longest losing streak since 2009, when the government started introducing measures, with some of the strictest implemented last year, including a cap on debt.

"Homebuyers are waiting and watching because they think prices will decline further," said Alan Cheong, a director at broker Savills said. "Prices will languish into next year as developers have no confidence to raise prices with sentiment so low."

The government said the share of homebuyers taking up multiple mortgages had slid to 13 per cent of new housing loans in the second quarter from 30 per cent in 2011.

Other developers share City Developments' concerns. CapitaLand, its biggest publicly traded competitor in Singapore, said earlier this month that the property cooling measures and concerns over interest rate rises continued to weigh down the market.

Frasers Centrepoint's chief executive Lim Ee Seng said the operating environment looked challenging as the cooling measures were affecting market sentiment.

City Developments last week posted a 4.7 per cent increase to S$127.2 million (HK$760.4 million) in third-quarter profit from a year earlier on higher property sales.

In addition to mortgage curbs and higher taxes, the developer is also concerned about the government's measures to cap the number of shoebox apartments, or those smaller than 538 sqft, in the suburbs.

"The market will continue to be price-sensitive and favour the trend towards a smaller-unit format," City Developments said. "However, these shoebox units are limited as the government had issued new rules to cap its supply since 2012."

The developer is seeking to expand overseas amid declining demand in Singapore. In September, it invested in a plot of land in Tokyo valued at S$356 million. It would also offer fund management products, the company said.