The pressures on the economy from slower growth and high home prices may prevent the Government from unwinding its property cooling measures, according to Maybank Kim Eng.
It noted that the slowing economy could prompt the Government to steer funds away from real estate speculation into more productive investments, a move that could also control wage inflation.
"We are increasingly convinced that property cooling measures may not be lifted, in order to steer investments to more economically-productive uses in the long run," said the brokerage's Singapore research team in a report.
"Singaporeans have been trained too well by their own Government to see property as the only safe source of long-term value creation," it added, noting that many people are either saving up to afford their first home or waiting for the right time to invest in another.
Households are sitting on a cash pile of $374 billion, or 93 per cent of national output (GDP), and have $840 billion of capital or 209 per cent of GDP tied up in residential property, according to the Department of Statistics.
The result is a "poor allocation of capital" when households with lower disposable income spend less and channel less into entrepreneurship, research and development, the report said. And the waste has grown with the rising number of vacant homes.
As anti-globalisation sentiment spreads across the world, dollar per capita consumption in Singapore - which is lower than in Australia, Hong Kong and Japan - could do with a boost, noted the report, which was released last week.
Over-investment in property hurts Singapore's cost competitiveness and is partly to blame as wage inflation outstrips productivity growth, said analyst Derrick Heng.
While home prices tend to track income growth over time as the population can afford to pay more for their homes, Mr Heng noted that high home prices have also lifted wage expectations and contributed to higher labour costs when expatriates negotiate housing packages, for example.
Notably, labour costs now make up 43 per cent of GDP, a level that preceded the 1985, 1998 and 2001 recessions. Meanwhile, gross operating surplus - a measure of firms' profitability - has fallen to 49 per cent of GDP, the low end of its historical range, said Mr Heng.
"If wages climb some more, the Government may be forced to provide cost relief for businesses," the report said, noting that Central Provident Fund contribution rates were cut in 1986, 1999 and 2003, about one to two years after labour's share of GDP breached current levels.
The analysts also warned that "unless property prices plunge suddenly and dramatically", property cooling measures may not be lifted.
"Banking system robustness suggests softer property prices could be tolerated without inducing systemic risks," the report said. Still, such a scenario would put residential developers and banks on the losing end, as loan demand falls.