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Home prices to fall 20%: Morgan StanleyBy MICHELLE TAN08 December 2011Prices of residential properties are expected to take a 20 per cent haircut, according to a report issued by Morgan Stanley Research.Though new home sales have been holding up relatively well with 1,632 units being sold in the month of October, it is key to note that the bulk of transactions stem from the Outside Central Region (OCR), implying a more mass-market type driven demand.Commenting on the issue, in- house analyst Sean Gardiner said: ‘This supports anecdotal evidence from the industry that demand for the mid- to high-end of the market is slow. In fact, sales in the Core Central Region (CCR) are down some 77 per cent year-on-year.’ But that does not mean that the pricing of mass market properties will hold up forever.Highlighting that the challenge is in ‘gauging the magnitude of the correction’, Mr Gardiner noted that the segment’s pricing is expected to come under pressure over the next few months and predicts prices to be down 20 per cent by the end of 2013.Exacerbating the situation is growing inventory levels, which have since risen above 2008’s peak, with 5,394 unsold units as at end-October. In fact, according to a real estate survey carried out by the National University of Singapore (NUS), developers are starting to show signs of cold feet as supply piles up. Findings from the survey noted that sentiment among developers has declined from just over 5.5 - whereby 10 is the most positive and 0 the most negative - at the start of 2011 to 3.4 as at end- September.‘We expect 12,000 units of new supply (private residential) in 2012 and 13,000 in 2013, including planned but not yet started projects. This compares to our incremental demand expectations of 4,000 private units per year, although if prices fall enough, we could see some higher-end Housing and Development Board (HDB) demand trickle through into the private market,’ pointed out Mr Gardiner, who expects vacancy rates to escalate next year.Together with other factors such as a lacklustre gross domestic product outlook and weaker population growth as expatriate numbers dwindle, it seems the bears have successfully taken over the reins of the domestic residential market.For now, though prices in the physical market may appear seemingly resilient, one should bear in mind that values could be buoyed by a variety of factors, such as low interest rates, high liquidity in the banking sector, and a spike in demand of properties from foreigners, especially the Chinese, as highlighted in the report.
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