BT : Home price rise reflects demand, not a bubble: DBS

Business Times - 13 Jan 2010

Home price rise reflects demand, not a bubble: DBS

By CONRAD TAN

THE recent sharp rise in private home prices here is not yet indicative of a bubble and prices could increase further, DBS Group research head Timothy Wong said yesterday.

'In the mass market, what you are seeing is real end-user demand that is catching up,' he told reporters at a briefing to present the group's economic outlook and investment strategy for the year.

'If you look at affordability levels, the average cost to service a mortgage taken against the median wage is about 30 per cent, which is fairly stable. When it moves up to 50 per cent, you know you have a bubble forming.

'So we're not really at a bubble stage yet. I think the last time we had a major bubble was probably in 1995-96, when queues were forming outside showflats and people were buying three or four properties at one go.

'This time, it's more circumspect - there are some speculators out there, but by and large people are genuinely buying homes to upgrade and move into,' Mr Wong said.

'Rental yields have come down, because they were exceptionally high at about 4-5 per cent, now they're about 3-3.5 per cent. If they got down to one per cent, I would say that represents a bubble.'

The group's research team expects high-end private home prices here to rise a further 10-15 per cent this year, while mid-tier home prices are expected to rise 5-10 per cent. It expects any increase in the price of mass-market private homes and public housing to be relatively muted.