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Despite property market cooling measures and rising interest rates, demand for homes in Singapore shows no signs of abating, even if a slight slowdown in the pace of inflation can already observed.
In 2021, year-on-year prices of apartments in Singapore went up by 12.5 per cent for resale HDB homes and 10.6 per cent in the private market. Projections for 2022 (as we still have a couple of weeks to go), place it at nine to 10 per cent on top of that, for both segments.
But if you were hoping this may finally come to an end, then I have some bad news, as an abrupt halt to inflationary trends doesn’t seem to be on the cards.
Prices for private homes are still expected to go up by another seven per cent in 2023 (as reported earlier a few weeks ago by Bloomberg) and given the market conditions, HDB is unlikely to be far behind either.
While both markets are largely separated, they tend to show correlation and both have surged to their historic highs following the post-pandemic rally.
Can the government do anything to cool the market?
While the authorities have enacted several property cooling measures, hoping to stop housing inflation, realistically speaking, there’s little it can do to achieve it other than boosting supply significantly — and even in this case, a lot of time has to pass before effects can be seen.
First of all, it doesn’t really matter how many hurdles are raised to dampen demand. The truth is that people need and want homes, and we can see this in the regularly oversubscribed Build-To-Order (BTO) launches.
Since not everybody is lucky enough to eventually land his new home this way, people turn to resale market, since even a costlier apartment is clearly better than no apartment for at least a few years into the future (which you still have to wait for a new apartment anyway even if you got your BTO).
Wealthier investors are back to buying private apartments as rents soared, given the sudden return of tens of thousands of expats who left during the pandemic. Some have reported getting their renewal rents increased by up to 70 per cent, as reported by Channel NewsAsia, with frenzy pushing desperate people to deposit money even before viewing an apartment.
Another expat CNA spoke to, who wanted to be known as Alex, said that tenants like herself are now forced to overbid on places they want and cannot negotiate any terms with landlords or agents, unlike in the past.
“Everyone is just panicking … People transfer deposits without visiting the place,” added the Frenchwoman, who currently rents a one-bedroom condominium unit in Redhill with her fellow expat boyfriend for S$2,300 a month.
She said she would have opted to extend her two-year lease, which is up in January next year, if her landlord did not choose to almost double the rent to S$4,300.
Finally, last but not least, Singapore is seeing an influx of foreign home buyers from China, Hong Kong and Taiwan, given the lengthy Covid-restrictions (which are only now thawing) and political uncertainty.
While transactions involving foreigners account only for about three per cent of all private market activity, they must have some influence on the prices, given different motivations of the buyers.
Not even the 2021 hike in additional buyer’s stamp duty (ABSD) — which was boosted to a whopping 30 per cent of the price for foreigners — has really hurt demand, as people accept it as a fee for security of their wealth and, very often, their families as well.
URA to boost land supply in 2023
Earlier in December, the Urban Redevelopment Authority (URA) announced the details of Government Land Sales Programme for the first half of next year, for a total of 7,715 private residential units, including 855 in Executive Condominiums.
More importantly, it added close to 600 units on the Confirmed List of projects (i.e. those which are sure to go on sale), up by close to 17 per cent from the 3,505 units in the second half of 2022, and 2,785 in the first half of 2022 (over 46 per cent year-on-year).
How does that affect you?
You may be wondering,“So what? I want my HDB. I’m not paying a few million for a condo; how does this help me?”.
Well, for starters, as I said, the two markets may be separated, but they are correlated. The fewer HDBs there are, the higher the demand for private properties — if not by the same buyers, then at least due to rising demand for rentals (the next best thing you can do if you can’t buy, after all).
Conversely, the larger the supply of private housing, the lower their prices and monthly rents, with pressure on public housing going down as well (as alternatives to HDB are a bit more accessible).
The only real way to stop prices from growing is to fulfil the pent up demand by raising supply. The challenge is, of course, how to do it quickly.
Fortunately, the pandemic-induced slowdown in construction is about to finally ease. Latest additions by the URA will bring the total number of units in the pipeline to 65,000, with over 33,000 to be completed in the coming two years.
This is very nearly three times as many as the 11,500 completed since 2021.
It’s not likely to affect the prices next year, but as more of them are released to owners, the inflationary pressures on properties should weaken.
At the same time, however, the high interest rate environment is affecting not only buyers — now forced to pay more for their mortgages — but also developers, who find it more costly to finance their investments.
This is despite the fact that their stock of unsold units has melted to just a quarter of what it was before the pandemic.
Recession to the rescue?
Ironically, then, the best hope for a meaningful price drop — or at least a halt to inflation — can be found in an economic slowdown, which is also on the cards for 2023.
A reversal of interest rate hikes abroad would bring them down in Singapore as well, as the Monetary Authority of Singapore doesn’t use them directly in its monetary policy (focusing instead on SGD exchange rates).
Cheaper money means lower risks to banks and, by extension, to developers, while also reducing the upward pressure on prices.
While seemingly going against the market logic, which would dictate that higher prices should incentivise higher supply, the combination of regulatory obligations, administrative costs, construction costs and borrowing expenses contribute to higher risks for developers, who by now must also be wondering where the end to this inflation is.
After all, nobody wants to buy high and sell low. And as long as this uncertainty persists, the market may not see a return to pre-pandemic levels.
Featured Image Credit: lteck/depositphotos
