SINGAPORE (Feb 11): Jefferies expects Singapore’s non-landed private residential price index to stay flat this year given rents are expected to improve about 2%, the supply pipeline is half of what the sector saw back in 2013 and resident population growth has been steady and the economy is witnessing net job additions.

While Singapore’s total population growth has slowed to less than 0.5% from more than 1% in the first half of the decade, resident population growth has been steady at about 30,000 annually. Adjusted for average family size, it should lead to a stable 10,000 demand for homes annually. More importantly, after a reduction in 2016 and 2017, jobs are being added since 2Q18. and wages are growing 5% annually since 2010.

On the supply side of the equation, the pipeline of 45,000 units is about half of 2013 and has already been included in Street Average Selling Price assumptions. The government has lowered the supply of GLS and HDB BTO units. 1H2019 GLS confirmed supply of 2025 units is the lowest since 1H16.

“If the trend of low GLS supply persists, it may lead to the next wave of en bloc unless developers diversify or consolidate,” says analyst Krishna Guha in a Monday report.

Meanwhile, private leasing volumes are growing 8% annually since 2013, much faster than the growth of the resident population at 0.8% or foreign population at 1.6%. It has also exceeded the 5% annual growth of private residential stock. The HDB rental index has also turned positive since 2Q18.

Land bids have seen a mixed trend after the July cooling measures. While the EC market continues to draw interest with bids implying break even above $1,000 psf, land bid for Dairy Farm Road site was about 20% below nearby sites.

Over the last three years, local interbank rates and fixed deposit rates of local banks, to which bank mortgage rates are pegged, are up about 60bps over the last three years but fixed deposit rates have been a lot less volatile. This means pegging of mortgage rates to fixed deposit rates may mute the impact when such packages are due for refinancing this year.

“We maintain the view that both rates & unemployment will have to go up simultaneously for a steep decline in the home price index,” says Guha.