Home prices could fall by as much as 20 per cent by the end of 2015 in the wake of oversupply, tougher loan rules and rising interest rates, say analysts.
One warning comes from a Barclays report which noted that risks from a number of directions are putting pressure on residential values and hitting demand at new launches. "We expect developer sales to fall by 30 per cent in 2013, as the latest sets of measures bite," it said.
In a separate report, CIMB said that a large supply of new homes set to hit the market could cause prices to correct by 10 to 15 per cent by 2015.
Affordability has become more of an issue since new loan curbs were introduced in June. These cap a borrower's total monthly debt payments at no more than 60 per cent of his gross monthly income.
Developers sold 11,174 new units in the eight months to Aug 31 - 27 per cent down on the same period a year ago, said Barclays in its report out last week.
Transactions could fall to a monthly average of 1,000 to 1,100 homes by the end of this year, bringing the total number of sales expected this year to 15,500 - 30 per cent below the 22,179 recorded a year ago.
The impending supply of new homes could also place downward pressure on home prices, added CIMB analyst Donald Chua.
Barclays estimates that this "total housing supply could average 40,000 units per annum, and peak at 47,000 in 2015... significantly above the historical average annual supply of 12,300".
Its analyst, Ms Tricia Song, said a supply glut would cause vacancy rates of private homes to rise from 5.6 per cent this year to 9.9 per cent in 2016.
"Historically, when vacancy hits 8 per cent, rents and prices tend to start declining," said Ms Song.
Barclays added that several rounds of cooling measures introduced by the Government have also caused demand in the resale market to slow down.
Since the additional buyer's stamp duty was introduced in December 2011, a measure that affected permanent residents and foreigners buying property, resales have slumped 54 per cent to around 2,000 units per quarter, it estimated.
This weakening in the secondary market means home prices could slide further if interest rates spike and many owners start trying to sell up at the same time, said Ms Song.
Property consultants largely agreed with the warnings contained in the two reports, adding to The Straits Times that prices could fall by as much as 20 per cent in the next two years in the event of an economic recession.
International Property Advisor chief executive Ku Swee Yong added that if property prices dropped by 5 to 8 per cent over two quarters, the Government could remove some buying restrictions or introduce market stimulus.
Third-quarter flash estimates of private home prices released on Tuesday showed a 0.4 per cent rise.