The Singapore residential property market has exploded to records this year. In the first one-year period of 2021 developers completed the sale of 12,467 homes, exceeding the total number of 9,982 units.
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Despite the latest round property cooling measures, which came on December 16, that saw the additional buyer’s stamp duty (ABSD) raised and the total debt service ratio (TDSR) increased, property consultants are projecting that the year will close with around 13,000 homes that are private and new. “It is the highest level since 2013, when 1494 units were sold,” claims Ong Teck Hui JLL executive director for research and consulting.
Private residential resales transactions are anticipated to finish this year with a 19,000-20,000 units -the highest since 2010 – “the highest since 2010 , when 22608 sales were made” In the report, Ong.
In URA’s 3Q2021’s last estimates, prices are rising by 5.1% year-to-September, says Tricia Song, CBRE head of research for Southeast Asia. She predicts prices for private homes to increase in the range of six% up to 7% over the course of the calendar year “in accordance with the ministry of Industry and Trade’s less optimistic 2021 GDP forecast of 7%” according to her.
The latest cooling measures are ‘unexpected’
In a q-o-q perspective that is, it appears that the URA home price index grew only 1.1% in 3Q2021, after an 0.8% rise in 2Q2021. In July of 2018 nine rounds of sanctions were introduced following an increase in the URA price index grew over the second consecutive period: 3.9% in 1Q2018 as well as 3.4% q-o-q in 2Q2018. “The anticipation was for higher price increases before any cooling measures were put in place,” says JLL’s Ong. “The new cooling measures came therefore unanticipated.”
On the other hand, Ong acknowledges that prices and fundamentals started to diverge in 2020 as the URA index increased 2.2% during a severe recession. The rapid growth in transactions this year, accompanied by an increase in demand and a the shrinking inventory of sales is likely to fuel price increases, he says.
This time, the ABSD rate changes this time are more severe than the changes that took place in July 2018 In the words of Ong. They were also accompanied by the tightening of TDSR as well. “Lowering to the TDSR down to 55% rather than sixty% could be an added dampener to the new policies,” he adds.
While the loan-to value (LTV) is a requirement of HDB is now 85% from 90% previously, LTV has remained unchanged at 75% for those who are first-time buyers who are taking out the mortgage. “The government continues to take an stance of policy to protect first-time buyers from any additional cooling regulations, specifically in cases where real family development are in the forefront,” says Lam Chern Woon Edmund Tie head of research and consulting.
Revision of the impact of July 2018 measures
If the July 2018 cooling measures is any indication, the average property prices increased 1.2% a year after the measures were implemented (from 3Q2018 until 2Q2019) as compared to an increase of 9.1% increase in the year prior to the measures were introduced (3Q2017-2Q2018) CBRE’s Song.
After a year of the measures (August 2018 to July 2019,), developers sold 9,489 new homes, which was compared to 9,743 units before those measures (August 2017 through July 2018) According the CBRE Research. The resales market was the one that took the majority from the measures to cool, shrinking by 46% in 9,098 homes, down from 16,943 units during the prior twelve-month period (3Q2017 through 2Q2018).
In terms of segmentation, property prices in the Core Central Region (CCR) declined in 0.5% from 3Q2018 to 2Q2019. Meanwhile, the prices of properties located in Rest of Central Region (RCR) and Outside Central Region (OCR) were up 3.3% and 1.2% and 1.2% respectively, one year following measures being implemented, according to CBRE Research.
“The cooling measures are expected to increase the affordability of new home buyers,” Song says. Song. This will reduce the chance of a hard landing if interest rates increase within the next few years, she states.
In light of the limited new launches coming in 2022 CBRE Research’s Song anticipates homes prices will “normalise” into the 9,000-10,000-unit range in the next. In the meantime, prices could be stagnant or experience one% or 3% rise in 2022. Resales are also anticipated to “normalise” since those who buy the second or greater property are charged more ABSD in addition to the ABSD, she states.
Alan Cheong, head of research at Savills Singapore, is sticking to his prediction of five% or 7% price hike in 2022. This is in line with nominal growth in GDP. “A 7.7% price hike in 2022 is not too high nor alarming since there will be a significant pressure on inflation on the economy for the next this year.” The head of research says.
Cheong isn’t expecting the measures to cool down to have an impact on the market for housing. The 10% increase on ABSD for foreigners up to 30% is not likely to impact the market at the highest end of the market as well Cheong argues.
Based on Ismail Gafoor, CEO of PropNex Foreign buyers comprised only 4.5% of total private non-landed transactions in the year. However, Singaporeans comprised the majority.
A lot of people believe that real estate is a great insurance for inflation Cheong observes. “Inflation will increase the price of construction and it could be passed onto buyers by developers,” he says. “On the subject of interest rates however, as long as they are in a proportional manner they shouldn’t slow the sales of homes.”
Risks are increased
If hyperinflation resurfaces but it’s going to be an entirely different story Cheong says. Cheong. “The increase in interest rates to counter which would hurt the need for mortgages and could have an adverse effect on existing mortgages, due to the increased burden of servicing of mortgagees” Cheong says.
Foreign buyers’ demand in the high-end segment of the market for residential homes is likely to decrease in the 1H2022 period, says Nicholas Mak, head of research and consulting for ERA Realty. But, he anticipates that transactions to rise in the second half of 2022. “Some of those buyers are thinking about saving money and, if they love the property and are looking to purchase to use for their own purposes then they might just decide to take the plunge and shell out to pay the ABSD,” he adds.
Despite property cooling measures however, residential property prices are anticipated to increase in the 2H2022 period due to the rising cost of living, according to Mak. “The costs of land, construction and the replacement costs of real estate will rise,” he adds. Rent rates are also expected to rise to meet the demand for rental property when foreigners return.
“As as regards Omicron, the Omicron variant, the population is becoming more reserved and comfortable with variations after repeatedly experiencing unsuccessful attempts to expand the economy as well as cross-border travel” Cheong says. Savills’ Cheong. “Unless governments worldwide are able to sound a more loud alarm about this variant or any other variants in the future society will just accept it and go on as normal although at a slower rate due to the ongoing pandemic efforts.”