Recent developments in the property market pose potential risks to stability : MAS

It’s a word of caution which came from the Monetary Authority of Singapore (MAS) on Thursday (Nov 30), warning of potential risks to the property market’s instability in light of recent market developments like the en bloc fever in recent months.

In its 2017 Financial Stability Review report released this month, MAS said that developers should take into account the significant increase in the number of private housing units available for sale in the near term when bidding for land.

It said in the report: “The large upcoming supply could lead to a supply imbalance over the medium term if not matched by occupation demand.”

“Prospective buyers should therefore remain prudent in their buying decisions.”

The redevelopment of these en-bloc sites, coupled with Government Land Sales (GLS) sites, could add another 20,000 new private housing units in the next one to two years – potentially doubling the number of unsold units currently in the pipeline.

“With slower population growth, there is considerable uncertainty as to whether existing vacancies and the new supply coming on stream can be fully absorbed by the market,” said the report.

“Should there be insufficient occupation demand for the completed housing units, a supply imbalance could result and place downward pressure on prices and rentals in the medium term”.

As a result, market players should remain cautious and adopt a medium-term view of the market’s supply-demand dynamics.

“Banks should continue to maintain prudent underwriting standards and review their valuation practices to ensure that property appraisals remain realistic and substantiated,” added MAS.

After declining at a “gradual pace” for 15 consecutive quarters, private property market prices picked up and registered a 0.7% increase in Q3 2017.

The report also noted an improved buyer sentiment in recent months, reflected in an  increased take-up at recent project launches and higher resale activity.

Yet, the rental market remains weak. While vacancy rates have declined from the peak of 8.9% in Q2 last year, they remain elevated at 8.4% in Q3 2017.

This is above Q1 2013’s 5.2%, and the historical average of about 6.5% over the past decade.

With the foreseeable changes in the near future, MAS says that it will continue to “monitor market developments and where necessary” to ensure that the property market remains stable and sustainable.