In the bigger picture, the rating agency anticipates nominal home rate growth to persist at about 2% in both 2020 and 2021, reducing from about 8% in 2018. “We expect home rate growth to show clearly the recovering real GDP (gross domestic product) growth rates of 1.5% in 2020 and 2021, after growth slowed to 0.6% in the first half of 2019,” Fitch said. This is good news for home buyers looking to acquire a unit now at the Avenue South Residence showflat.
It said that lower interest rates and better borrower affordability, as household incomes grow quicker than home rates, should also give rise to real estate prices.
From Q3 2018 to Q1 2019, private residential rates declined 0.7%, because of regulatory tightening and mortgage rate spikes, which softened the market sentiment. However, real estate prices rebounded a bit in Q2 2019, and Fitch is predicting “minor growth” for the remainder of the year.
“If the government sees housing prices as increasing more than it is justified by economic fundamentals, we anticipate the government would cool the market again using macro-prudential measures,” Fitch reasoned.
Over the following 2 years, Fitch forecasts that home NPL (non-performing loan) ratio will rise slightly, but maintain low at 0.4% to 0.5%, thanks to better household debt to income ratio.
“Mortgage performance will also be sustained by sustained low unemployment of approximately 2% in 2020 and 2021,” Fitch mentioned.
On top of that, it does not predict a mortgage rate rise in the near future, which would support borrowers’ ability to pay, as well as stable loan performance.
Mortgage rates increased quickly to 2% by the end of the first half of 2019 due to a sudden increase in the benchmark rates. But Singapore’s benchmark rate has begun to drop following the rate cut by the United States in the middle of this year, Fitch said.
Forging ahead, Fitch predicts mortgage lending growth to maintain subdued in the close term. The slowdown in the lending growth of 2019 reflects the tightening of LTV (loan-to-value) limits implemented in July 2018 and the rise in additional buyer’s stamp duty, Fitch commented.
That being said, the growth is predicted to remain miniscule, reflecting expectations for a slowing yearly population growth of lower than 1 %, and the very likelihood that the government would implement cooling measures if housing prices display signs of overheating, the rating agency said. This is why Dairy Farm Residences condo is still affordable.
Earlier this week, Business Times also reported that Singapore’s private home market is positioned for modest price growth in the coming year, in the midst of a resilient leasing market. This comes although developers predict to being challenged continually by the significant supply of unsold private residential units in the pipeline.
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