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Where are residential prices heading in the next 2 years?- A summary of J.P.Morgan report

Updated: Jul 21, 2020

Last month, J.P Morgan released an interesting report on Singapore developers and possible movement in residential prices in the next 2 years. I personally find it insight and interesting as the report is laden with loads of data to back their claims, and I thought it would be beneficial to many with a quick summary of it.

Let me attempt to write this summary in a form of questions and answers for simple reading and understanding.

First and foremost, where are residential prices heading in the next 2 years according to the report?

Based on the report, the team at J.P.Morgan anticipated that there will be a 10% drop in residential prices over the next two years.

Woah 10%? How did they arrive to this figure?

The main metric they used in arriving to this figure is the price to median household income ratio. In the past few years, median household income has been growing at a CAGR of ~5% with property prices experiencing only modest growth in comparison. This then results in a low price to median household income ratio of 10.3. In fact, this is the lowest ratio we have heading into a recession as compared to all the other recessions (Asia Financial Crisis, Dotcom bust, Global Financial Crisis etc) we have in the past 25 years.

Assuming flat growth in median household income in the next 2 years coupled with assumption that the price to median household income ratio to fall to similar levels seen during Dotcom bust (ratio of 9.3 at trough), a potential drop of 10% is anticipated.

However, it is also useful to note that residential prices has fallen anything between 3% and 22% in previous down cycles.

When is the bottom likely to happen?

No exact date or period is given. However, I inferred that the bottom is likely going to coincide with the time when developers give the most discounts. That is likely to happen when projects are heading towards the five-year ABSD deadline. Given that government offer a temporary 6 months delay in this deadline to the developers due to the circuit breaker, it is expected that the first tranche of projects to be hitting this deadline will be as quickly as 2H21 or early 2022.

Bulk of the existing projects are not expected to meet their deadlines so soon though. A majority of them are expected to only meet their deadlines in 2023. Hence, I personally think that most of these projects are still relatively safe unless the current recession we are in stretches to 2023.

In the report, a list of deadlines for each of the residential projects is given in table 28. This could serve as good reference for buyers who are looking at specified residential projects to have a chance at inferring when is the likely period for the developers to be giving discounts, if any.

Is the government likely to introduce new measures to help the property prices?

Currently, the government has only allowed a temporary 6 months delay in the five-year ABSD deadline for the developers due to the circuit breaker. There is also no immediate big price cuts by the developers as the ABSD deadline is still some time away for most of them. With no immediate big price cuts, there is only modest fall in property prices. Hence, it's not expected that the government will step in to introduce more new measures.

If developers start giving big price cuts as the ABSD deadline looms, property prices are expected to drop more rapidly and there would be expectations that the government would begin to step in when this drop is more than 5% to prevent a collapse in the property market due to panic. I personally think that the likelihood of this happening increases the longer the current recession stretches as weak demand of property would continue to persist during recession thus prompting developers to slash prices to avoid paying ABSD.

Which region is likely to be most hit? OCR, RCR or CCR?

CCR is likely to be most hit due to various reasons. Firstly, buyers of CCR units tends to be investment focused and many of them are foreign buyers. With the travel restrictions being put in place by COVID-19, there is likely to be an immediate impact on the sales of CCR units by the foreign buyers as they could not travel to Singapore. Secondly, there is currently a huge supply of 7,715 CCR units with over 4,000 units launched this year due to en-bloc activities which happened in the previous years. With a supply of 7,715 units and an average demand of merely 800 units per annum over the past 3 years, there is an anticipation that close to 10 years will be required to clear this backlog.

This is in sharp contrast with the RCR and OCR units. For the RCR and OCR units, there is a supply of 22,000 units with an average demand of 10,000 units (partly due strong HDB upgrader demand), it will take only roughly 2-3 years to clear this backlog.

Hence, sales of CCR units are expected to be faced with the strongest headwind with this huge backlog coupled with less than favourable demand amid the current climate.


In my opinion, the above questions and answers make up the essence of the article on the topic of understanding the property market in the near to medium term. I strongly encourage you to read the article in full as there are more things related to the stock prices of the developers which are not covered in my summary. Also, the article has several tables and figures which you might find useful if you are waiting on the sidelines to make your property purchase.

Hope you enjoyed the summary.

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