Last year Morgan Stanley has called for home prices to double by 2030. A lot has happened since then, and following a new round of property cooling measures announced in July 2018, sentiment in housing market was significantly affected.
Recently, they have revisited their earlier thesis and concluded that their earlier forecast remains intact. Below are their key arguments. They also addressed 3 key concerns in the market, i.e. Rising interest rate, Cooling measures and potential Economic Slowdown.
1. Household formation rate rising
The resident household formation rate remains healthy, and the proportion of skilled foreign workers continued to rise in 2017, which supports fundamental occupational demand for housing.
2. Singapore's economy to continue to outperform other DMs
Singapore's economy grew 3.6% in 2017, outstripping DM growth of 2.3%. What's noteworthy is that productivity growth in Singapore has picked up as well.
3. Tighter vacancies and strong upgrader demand will further support private housing prices
They believe that demand from HDB upgraders and en bloc beneficiaries will absorb the units in the pipeline for launches. Meanwhile, tighter vacancies and stronger rental market could support higher condo prices in the resale market.
4. En bloc boom resulting injection of household liquidity has only just begun
The en bloc boom that lasted from May 2017 to June 2018 will transfer some $18 bn of proceeds to displaced home owners. Additional capital is likely to find its way back into the property market for replacement homes, and could be leveraged up to four times that amount using mortgages. To put that into perspective, total developer sales have averaged just $15bn a year over the past decade.
5. Existing Policies lower risk of panic and fire sales & household balance sheets are now stronger
2013 introduction of Total Debt Servicing Ratio, which caps mortgage payments at 60% of borrowers' incomes, limits the potential for mortgage defaults. Loan to Value limits on home purchases decreased from 90% to 80% in 2010, and to 75% in 2018. This further reduces the risk of excess leverage and mortgage default risk.
