Investors underestimating impact of Singapore government’s efforts to concurrently increase residential land supply, dampen housing demand, says UBS, according to Dow Jones.

UBS tips 30% fall in transaction volume, decline of up to 10% mass-market home prices by end-2011. Cites slowdown in growth of Singapore permanent residents (PRs), sharp increase in new supply of public-housing flats as key risks to overall residential demand.

Research house notes number of PRs +1.5% from beginning 2010 to June vs +11.5% for whole of 2009, +7.4% annually over 2004-2008: “We believe the government has put the brakes on the granting of permanent resident status.”

UBS says 1.5% growth rate could be “the new normal” for next 2-3 years. Expects policy risk to remain high until physical prices come down. Downgrades CityDev (C09.SG) to Sell from Neutral, cuts target to $10.96 from $12.50, downgrades Allgreen Properties (A16.SG) to Neutral from Buy, cuts target to $1.13 from $1.33.