SINGAPORE’S property prices are expected to turn the corner next year, ending a protracted downtrend since late 2013, and to double by 2030, Morgan Stanley says in a note.
This is based on its forecast that home prices will rise by 5 per cent each year on a per square foot (psf) basis from 2018 to 2030.
The bullish report issued by the bank on Wednesday dismisses concerns raised by property market bears who flagged slower population growth, an ageing population and a structural growth slowdown as weighing on the long-term property market outlook.
“We disagree, and in fact, we expect home prices to double by 2030,” five Morgan Stanley analysts wrote in the report.
But they noted that with developers likely to continue “right-sizing” units, an estimated one per cent decline in average home size in square feet each year will translate to an average 4 per cent annual growth in prices per unit, hence keeping pace with the anticipated income growth of 4 per cent.
The report suggests that in the long run, it is household formation rate, not population growth, that one should consider – and that figure has been rising.
“We expect a rising household formation rate, driven by singles, and shifting profile of foreign labour towards higher skilled workers to offset the slower headline population growth,” the Morgan Stanley analysts said.
Resident household growth has picked up since 2013, driven by an increasing number of single households. Given rising singlehood here, Morgan Stanley estimates that one in five Singapore resident households will be occupied by just one person by 2030, from one in eight households in 2010.
Secondly, even though Singapore’s annual gross domestic product (GDP) growth is expected to average 3 per cent from 2016 to 2030, it will still be higher than many advanced economies.
The International Monetary Fund expects average annual GDP growth in advanced economies to be 1.7 per cent between 2016 and 2021, while the OECD’s estimate of the long-term average potential output for OECD members (which include emerging market economies such as Mexico, Chile and Turkey) stands at about 2.3 per cent per annum between 2016 and 2030.
The outlook for Singapore’s economy has brightened lately on the back of export-led growth in the resurgent manufacturing sector. But on Thursday, Singapore’s flash estimate showed a slightly lower-than-expected GDP growth of 2.5 per cent in the first quarter of 2017 from a year earlier, easing from the 2.9 per cent growth in the previous quarter.
Morgan Stanley notes that Singapore remains a globally relevant city that attracts foreign capital and talent. It believes any supply- demand mismatch in the property market is less likely to persist because the massive state-owned land bank and the dominance of public housing provide much flexibility to tweak supply.
Bequest motives, lease buyback schemes and shifting manpower trends will also help assuage property market selling pressures that come as the population ages, it says.
Property prices surged more than 60 per cent from 2009 through 2013, fuelled by rock-bottom global interest rates even as the Singapore government rolled out a series of cooling measures since late 2009 to prevent a bubble from forming. But prices have fallen by only 11.3 per cent as at end-2016 from the peak in Q3 2013. From 1975 to 2016, home prices rose at a rate of 7 per cent per annum.
Indicators of supply-demand dynamics have already improved significantly – residential supply has peaked, demand is now surprising on the upside, and developers’ unsold inventory is at an all-time low.
“The recent easing of property curbs suggests that we are closer to the bottom, which will improve buyer sentiment,” Morgan Stanley analysts said, referring to the measures taken in early March to lower the seller’s stamp duty and shorten the minimum holding period from four years to three years.
In the near term, Singapore’s improving macroeconomic outlook and an expected surge in sales volume this year will set the stage for a price recovery next year and developer stocks to rerate over the next 12 months, the report posits.
Morgan Stanley has raised its price targets for Singapore-listed developers by 17 per cent on average, which reflect a tightening of discounts to revalued net asset value from 39 per cent to 28 per cent. Its top picks are CapitaLand, City Developments and UOL Group.