Singapore’s real estate rally predicted to halt, says Morgan Stanley

Morgan Stanley analysts highlighted the potential end of Singapore’s longest private home price rally since the 1980s. The firm anticipates a slowdown in the real estate market due to an imbalance between demand and supply, coupled with high stamp duties expected to deter foreign buyers and deter public housing upgrades.

This prediction comes on the heels of an unexpected price rise in Q3 2023. However, the number of investors is expected to decline as more land than ever in the past decade is set to be put up for sale. In contrast, Hong Kong has taken steps to revive its property sector by cutting housing taxes.

The analysts foresee a 3% reduction in home prices by 2024, which they predict will last for two years. The ST All-Share Real Estate Index has already fallen by 13% this year compared to a 3.3% fall in Singapore’s equity benchmark.

Morgan Stanley’s note from Tuesday also detailed downgrades for key property developers City Developments Ltd. and UOL Group Ltd. in anticipation of these market changes. There’s a risk of both UOL and City Developments being removed from the MSCI Singapore Index, which, along with high borrowing costs, could affect their valuations. Both developers’ stocks declined more than 2% each today, according to relative returns data compiled by Bloomberg.

The real estate sector has underperformed compared to the Straits Times Index this year. Measures have been implemented to cool the overheated market and a decline in home rents is expected. The analysts expressed a preference for asset managers and real estate investment trusts, citing fewer structural and cyclical headwinds for these groups.

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