Private home prices projected to fall next year, property stocks lose favour as share prices slide?

As Singapore's home price growth slows, analysts project that local private residential prices could fall by 3% next year, taking a bearish view on local property developer stocks. Analysts surveyed generally believe that while developer valuations appear attractive, near-term catalysts remain lacking.

City Developments Limited (CDL) fell 2.52% to $6.20 on Thursday, while UOL Group (UOL) slid 2.28% to $5.99, bucking the broader market trend.

Target prices were cut, with CDL lowered from $8.20 to $5.70 and UOL from $7.30 to $5.10. Among other property counters, CapitaLand Investment slipped 0.33%, while GuocoLand dropped 1.97%.

The report highlighted that Singapore home prices are on the brink of a decline following a seven-year bull run. Thinner development margins, higher interest expenses, and headwinds from index rebalancing mean developer valuation discounts are likely to persist.

Several headwinds have contributed to the pullback in property demand. Heavy stamp duties have kept foreign buyers at bay, fewer HDB upgraders are entering the private housing market, and with rents expected to soften next year, investors have also turned cautious.

On the supply side, the government has ramped up land supply, with the total Confirmed List pipeline for the full year hitting a 10-year high. Government Land Sales (GLS) bid prices are showing signs of moderating, with land costs for comparable sites down 10% from last year. As projects on these sites launch next year, lower launch prices could pull down the overall price index.

Analysis: Private home prices projected to fall 3% next year

Local private residential prices are forecast to decline by 3% next year as Singapore's property market heads into a downcycle.

According to the report, the market capitalisation of local developers has halved at most over the past seven years, with shares currently trading at a 60% discount to revalued net asset value (RNAV)—"a valuation level typical of a major crisis". The report added: "This is not only due to slower price growth this year, but also ongoing regulatory changes that have raised development risks and compressed returns."

In the first nine months of the year, new private home sales tumbled 16.9% year-on-year, reflecting market weakness weighed down by property cooling measures and elevated mortgage rates.