No basis to say home prices will keep rising

Surprisingly, Morgan Stanley has bullishly predicted a 2 per cent rise this quarter and an 8 per cent rise over the course of next year in private home prices, despite declining housing demand, an oversupply in the pipeline and rising interest rates (Curbs won't cool private home prices: Morgan Stanley; Oct 13).

Contrary to what Morgan Stanley said - that economic growth supported the home price growth between 1993 and 2007 - the main driving force of home price increase then was the explosive population growth.

This time, the fundamental factors are different.

Since 2012, the population growth in Singapore has been declining sharply. Last year, the population growth from the year before was 0.1 per cent. To support home price growth, some analysts say the population growth rate has to be 1.8 per cent or higher.

With the decreasing population growth, a rapidly ageing population and a declining young, working-age population, the housing demand is likely to shrink.

Unless there are major changes in our immigration policy, the prospects of improving housing demand are not there to provide support for any home price growth.

The divergence will almost certainly exert a downward pressure on home prices over the next few years.

Hence, it is difficult to imagine how home prices will rise when the economic fundamentals do not appear to support an increase.

Wong Toon Tuan

A version of this article appeared in the print edition of The Straits Times on October 19, 2018, with the headline 'No basis to say home prices will keep rising'. Print Edition | Subscribe