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Singapore home price fall sets bearish tone for 2014

Yachts at ONE°15 Marina Club at Sentosa Cove during the Singapore Yacht Show 2011 are anchored against the backdrop of luxury condominiums, in Singapore, on Sunday, April 10, 2011.
Bloomberg | Getty Images
Yachts at ONE°15 Marina Club at Sentosa Cove during the Singapore Yacht Show 2011 are anchored against the backdrop of luxury condominiums, in Singapore, on Sunday, April 10, 2011.

Private residential property prices in Singapore - one of the world's most expensive property markets - slipped in the final quarter of 2013, the Urban Redevelopment Authority said on Friday, a further sign that the nation's red hot property market is cooling.

Prices decreased by 0.9 percent on quarter, the first time overall prices have dropped since the first quarter of 2012. For the entire year, prices rose 1.1 percent, a marked slowdown on 2012's 2.8 percent increase.

"By now, we can be quite certain that the private residential market has turned the corner and is entering into a consolidation phase with reduced transactional activity and prices under pressure," said Ong Teck Hui, national director for research & consultancy at Jones Lang LaSalle.

(Read More: When will Singapore roll back property curbs?)

According to Desmond Sim, associate head at CBRE Research, the reduction in prices is a clear consequence of the government's recent cooling measure taking effect.

The Total Debt Service Ratio (TDSR) - introduced in June - involves rules to ensure a buyer's monthly payments do not exceed 60 percent of their income, a move designed to make sure buyers aren't caught out by a spike in interest rates.

"The price falls are a result of a lot of the new developments launched last quarter being priced quite competitively. Definitely it's an effect of the latest cooling measure, and it's a reaction from both the buyers and sellers, more so the developers who knew that in order to move the units they needed to price it competitively," said Sim.

Singapore's red hot property market has seen prices spike over 60 percent since 2009, as low interest rates and high demand have pushed house and apartment prices to staggering highs. In an effort to cool the market, the Singaporean government has unleashed seven rounds of cooling measures, which now appear to be paying off, as developers invest in fewer projects and buyers are subject to more restrictions.

(Read More: Is Singapore real estate losing its shine?)

Barclays' property analyst Tricia Song said the reason for the dip in prices was largely due a reduction in the pricing of high-end homes, which fell 2.2 percent in Q4, compared with a 0.3 percent decline in Q3, while suburban homes outside the city center slipped 0.6 percent, compared with a 2.2 percent gain in Q3.

Barclays expects the recent decline in developer sales, which fell 30 percent on year in 2013, to continue to decline as the TDSR impinges on sales appetite, fueling further price falls across the market.

"We maintain our negative stance on the Singapore residential sector as we expect prices to fall 5 percent in 2014 and another 5-15 percent by the end of 2015," she said.

(Read More: Are Singapore home prices set for a bruising?)

CBRE's Sim said he also expected prices to cool further over the course of this year and next, but said they would remain resilient in the near term.

"We expect prices to remain relatively stable with a bit of downward pressure in the first half of 2014. A lot of the developers have deepened their pockets over the past few years so they are able to hold back on the pricing. We are looking at an around 5 to 10 percent correction over the next two years, but it won't be a knee jerk fall," he said.

Friday's data follows a series of weak data points since the start of 2014. Private home sales in December tumbled, the URA said earlier in the month, when only 259 private home units were sold in December a near 82 percent reduction on the 1,410 sold a year earlier.

Meanwhile prices of government housing - known as HDBs - have also been falling. On Friday the Resale Price Index (RPI) for HDB flats for the full year of 2013 dropped 0.6 per cent, the first annual decline since 2005.

(Read More: Economist defends Singapore bubble claims)

By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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