The property market will continue to face challenges this year but there are "green shoots" in the luxury residential and office sectors, said DBS Group Research.
It estimates that luxury home prices will bottom out over the next 12 months as transaction volumes and foreign interest in properties in the core central region pick up.
Overall, private home prices have fallen by about 11 per cent since the third quarter of 2013 as a raft of cooling measures weighed on demand.
The price slide has made high-end apartments here more appealing than those in other cities.
"The gap has widened over time when compared to other residential investment destinations such as Hong Kong, London and New York, where prices have continued to increase over the past few years," DBS Group Research said in the report.
It noted that there is "potential capital upside in the medium term" in the luxury home segment and expects sales of these properties to continue to improve this year.
DBS Group Research tips that office rents could also bottom out by the end of the year owing to better take-up of space in new buildings.
Developers and real estate investment trusts (Reits) will continue to seek growth opportunities overseas but DBS Group Research expects the "acquisition momentum to taper on the back of increased currency volatility, coupled with higher cost of funds".
It said London, Melbourne, Sydney and Shanghai remain attractive in terms of currency valuations in relation to the Singdollar.
Developers are also more likely to dip into the collective sales market or turn to mergers and acquisitions to build up their store of sites.
"Smaller developers, some of which on average trade at a 50 per cent discount to book values, could be attractive acquisition or privatisation candidates," said DBS Group Research.
It noted that the shares of Bukit Sembawang, Wing Tai Holdings, Hiap Hoe and Ho Bee Land - companies with attractive assets - are trading at deep discounts to net asset value.
A potential increase in en bloc deals, along with more participation in government land sales tenders, should keep site values firm and home prices stable in the coming years, it added.
In view of the risk from interest rate hikes this year, DBS Group Research believes that early refinancing and interest rate hedging will be a key focus for the developers and Reits.
In a separate report out yesterday, OCBC Bank said it does not foresee a respite in the general property market this year "as the market conditions and demand-supply fundamentals have not improved".
It noted that 11,993 private homes were sold in the first nine months of last year, markedly lower than the 18,000 to 29,000 seen during similar periods in 2011 to 2013.
Property is also becoming less attractive as an investment tool to generate a passive income.
"With rental rates falling another 1.2 per cent in the third quarter of 2016 and borrowing rates rising with the hike in interest rates, net rental yields are likely near zero," OCBC Bank added.
