Property Prices On Track to Double by 2030.....

Excerpts from Morgan Stanley Research.

Singapore Economics & Property.. April 2017

Property Prices Inflecting and On Track to Double by 2030

The economy is seeing a cyclical uptick and we expect a home price inflection in 2018. This sets the stage for developer stocks to rerate over the next 12 months. Longer term, we expect the economy to outperform developed market peers' and property prices to double by 2030.

Why property market trends matter: Given the high home ownership rate, residential property is the most important asset class for most households, comprising 45% of household assets in 2016. The trajectory of property prices has knock-on implications for stock market performance, household balance sheets and sentiment. In this report, we lay out our views on the near- and longterm outlook for the Singapore economy and property market, integrating our macro top-down view on the economy with our bottom-up sectoral view.

Inflection in home prices in 2018 amid improving macro outlook: The economy is seeing a cyclical recovery from better exports and manufacturing output, and we see upside risks to our base case GDP growth forecasts. Our bull case GDP forecasts are 2.3%/2.8% for 2017/2018. This improving outlook would help drive an inflection in home prices in 2018. Additionally, these other factors also matter: (1) we expect sales volume to surge in 2017, and the increase in transaction volume will be a positive signal for home prices to follow in 2018; (2) the recent easing of property curbs suggests that we are closer to the bottom, which will improve buyer sentiment; and (3) supply-demand dynamics are improving significantly, with supply already peaking, demand surprising on the upside, and unsold inventory at all-time lows.

Property prices to double by 2030 as long-term fundamental drivers stay supportive Property market bears have painted a gloomy investment outlook for Singapore property, as they highlighted that slower population growth, a rapidly ageing indigenous population, and a structural growth slowdown would weigh on the long-term outlook of the property market. We disagree, and in fact, we expect home prices to double by 2030. We think that demographic trends matter, but there are other factors that will affect the property market outlook. In particular, we list five key demand and supply drivers that will support medium-term home price appreciation: (1) we expect the rising household formation rate, driven by singles, and the shift in the profile of the foreign workforce towards higher skilled workers to offset the drag from the headline population growth slowdown; (2) we think that the medium-term potential GDP growth for Singapore at 3.0% over 2016-2030 means that the economy will continue to outperform other advanced economies (Exhibit 4), and hence support income growth; (3) we expect investment capital to remain forthcoming, given the continued global relevance of Singapore as a city state economy; (4) elastic supply-side adjustment reduces the likelihood of a supply-demand mismatch; and (5) a combination of bequest motives, lease buyback schemes, and shifting manpower trends assuage property market selling pressures that come as the population ages.