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Curbs won't cool private home prices: Morgan Stanley - The Straits Times

October 13, 2018

Investment bank Morgan Stanley has deemed concerns over property cooling measures and higher interest rates as "overdone" while also predicting that house prices here will shoot up next year.


The American firm said yesterday that it predicts private home prices will rise by 2 per cent each quarter until the end of next year. That points to a 2 per cent rise in this quarter and an 8 per cent rise over the course of next year. Its surprisingly bullish forecast is in contrast to other research teams.


DBS Bank senior vice-president for group equity research Derek Tan said next year is "likely to be flat or slightly down given the measures", while RHB Bank predicted a 0 per cent to 2 per cent rise for next year.


Morgan Stanley acknowledged that "the market remains unconvinced about the housing market's near-term outlook", but said concerns about cooling measures, interest rate hikes and an economic slowdown were "overdone".


It noted that home prices rose in four of the five previous rate hike cycles between 1993 and 2007 - and rising rates "tend to coincide with improving economic growth, which supports housing demand".


The firm believes investors and foreigners will still buy despite the cooling measures. It noted "healthy demand" from Housing Board upgraders and collective sale beneficiaries, adding that supply is still tight "as unsold inventory of 28,000 units (including from launches in the pipeline) is still below historical levels".


But other analysts thought the bite of cooling measures and other factors have been more severe.


Private home prices rose between 3 per cent and 4 per cent a quarter in the first and second quarters before slowing to a 0.5 per cent increase in the third, according to official flash estimates.


Consultant JLL predicts prices to rise 8 per cent to 9 per cent this year and 2 per cent next year, given the "significant supply in the launch pipeline and the softer demand following the July 6 cooling measures", said its national director of research and consultancy Ong Teck Hui.


The measures were imposed "to... keep price increases in line with economic fundamentals". This suggests that if prices rise too much, there will be more intervention.


Next year could also see supply from collective sales coming into the market. "That would be a lot of choices for buyers. You wouldn't be able to price so aggressively," said RHB analyst Vijay Natarajan.


Ms Tricia Song, Colliers International's head of research for Singapore, said: "We think home prices could remain flat in the first half of 2019 and (then) start recovering."

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