Singapore - Home prices here could fall 20 per cent by 2016, depending on how the Government moves on its economic restructuring policies and property cooling measures, Bank of America Merrill Lynch has said in a new report.
"We believe the fate of the market will depend very much on the direction of policy, particularly on restructuring, immigration and foreign workers, as well as the timing of the relaxation of strict property measures," economist Chua Hak Bin wrote in the report that was released on Tuesday.
This is because an "overly tight" population policy would exacerbate Singapore's ageing demographics and limit the inflow of a younger foreign workforce, which in turn, would affect property prices, he said.
Meanwhile, delays in relaxing the property cooling measures would "imply a greater negative impact from rising mortgage rates and persistence of housing distortions".
Dr Chua said he expects the Government to only begin unwinding the property measures in the second half of next year, when US interest rates and Singapore mortgage rates begin rising.
In the meantime, however, he noted that Singapore's transition to a productivity-driven growth model is still ongoing and has produced mixed results so far. Restructuring is reducing overall gross domestic product (GDP) and employment growth and total job creation is likely to slow this year, he added.
"We do not see the government reversing course, but a pause may be in order... as companies, particularly small and medium enterprises, are having trouble adjusting to the speed of the tightening."
And the demographic challenge in Singapore is daunting, he added, given a declining birth rate and an ageing population.
"With the tap on foreign labor inflows tightened, ageing demographics will likely weigh on growth and the property market."