(Adds milestone, analyst reaction)
* Singapore's private home prices fall 1.5 pct in Q3-URA data
* That marks the largest quarterly drop since Q2 2009
* Reflects economy's weakness and new calculation method -analyst
SINGAPORE, Oct 3 (Reuters) - Singapore's private home prices fell at the fastest pace in seven years in the third quarter, as sluggish domestic demand adds further pressure on the export-reliant economy ahead of a central bank policy review expected later this month.
The private residential property index fell 1.5 percent to 137.9 in the July-September quarter, according to a flash estimate released by the Urban Redevelopment Authority (URA), after falling 0.4 percent in the previous quarter.
The latest drop was the largest quarterly decline since home prices slid 4.7 percent in the second quarter of 2009, when fallout from the global financial crisis slammed into Asia and pushed Singapore's economy into contraction.
"The main reason why this time around the drop is steeper is the market is finally feeling the brunt of the economic slowdown on top of the downward pressure from the supply spike in 2016, 2017," said Christine Li, head of research for Cushman and Wakefield in Singapore.
Including the drop in the third quarter, private home prices have fallen 10.8 percent from a peak in the third quarter of 2013, having declined for 12 straight quarters. The price declines have come after authorities introduced a series of property market cooling measures in recent years.
"Vacancy rates are rising and there is still a large supply. And we think that the non-residential industrial sector is likely to feel the biggest headwinds as global trade remains weak. So it is not just residential that is feeling the pinch," said Trinh Nguyen, senior economist for Natixis in Hong Kong.
Cushman and Wakefield's Li said an adjustment to the way the URA compiles the property price index probably added to the fall in the property price index in the third quarter. The change takes into account various incentives and discounts that developers may use to sell property after they are completed and delicensed.
Starting with the third-quarter data, the URA has started including net prices of delicensed projects in the property price index data, which is based on all property sale transaction both in the new sale and resale market, a URA spokesperson said.
"For new sales, the majority of units are sold by licensed developers before the projects are completed and delicensed. A small percentage of all property sales is from completed delicensed projects," the URA spokesperson said.
The URA is due to release full data on third-quarter private home prices four weeks later. (Reporting by Masayuki Kitano, additional reporting by Jongwoo Cheon and IFR Markets' Catherine Tan)