Since the 2022 Singapore property cooling measures were enacted in September 2022, the Singapore private residential property market has slowed considerably. However, it was not all due to the cooling measures as there are many other factors at play.
Here we look at a few of these other factors and provide our views on why we think the Singapore private residential property market is probably going to fall in the short term.
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1) Data shows the market is overextended
Looking at the charts above, we can see that the property price index has increased from around 140 points to 187.8 while the rental index has increased from just above 100 points to 137.9 points now. What is worth highlighting is the trajectory of the increase.
The property price index has been on a somewhat gradual uptrend in the past 5 years, albeit at a slightly faster pace in the last 2 years while the rental index’s trajectory has been nothing short of steep with most of the gains seen from 1Q2021.
Looking at the table above, we can see that despite increased pipeline supply in 3Q22 as compared to 2Q22 and a higher vacancy rate, coupled with lower take-up demand, both the price and rental index still rose substantially.
2) Data shows transaction volume declined
Looking at the chart above, the new launches and take up rate in 2022 has seen a steep decline when compared to 2021.
In addition, looking at the table below, we can see that URA’s market transaction volume for both new homes and resale has seen steep declines in the private property (and EC) segment.
3) Are transaction volumes an indicator of future property prices?
Looking at the chart below, we can see that the 9M22 transaction volume is 6,409 units, when compared to historical trend, the 9M22 transaction volume is above the years 2014 to 2016 but likely below the years 2017 till to date.
In the chart below, we can see that the property price index saw a previous peak in 3Q13 and then went on a multi year downtrend, bottoming in 2Q17. Hence, we can see that there is some correlation between strong property prices and transaction volumes.
The data doesn’t reveal the leading indicator, i.e., does strong property price lead to higher transaction volume or does higher transaction volume lead to stronger property price. But we venture to guess that it is the former as strong property prices tend to lead to owners wanting to either cash out or upgrade.
On the other hand, we wonder whether lower transaction volumes will lead to property prices falling?
4) Market outlook
PropNex has also provided the following market outlook:
“Overall private home prices grew for the 10th consecutive quarter at 3.8% in Q3 2022 and climbed 8.2% from January to September 2022. The tight unsold stock of new private homes and limited new launches in Q4 2022 will likely see 2022’s private home prices rising at a slower pace with an overall price increase of 9% to 10%, while transaction volumes are estimated at 8,000 to 8,500 units (ex. ECs) for the year.
Transaction volumes for private residential resale will likely remain muted given the tight resale inventory. Owners may be reluctant to sell and instead opt to tap the strong rental demand, while increase in rents may also help to defray any increase in monthly mortgage payments due to rising interest rates. Private homeowners looking to downgrade to HDB resale flats may now also hold back due to the newly imposed 15month wait-out period, further crimping available resale stock.”
Our takeaway from this commentary is that both price increases and transaction volumes are likely to taper and be muted in the near term.
5) Untimely increase of construction pipeline
The number of unsold units (including ECs) with planning approvals has increased to 17,737 as at the end of 3rd Quarter 2022, from 17,506 in the preceding quarter. Apart from the 17,737 unsold units, there is a potential supply of around 5,800 units (including ECs) from Government Land Sales (GLS) sites and awarded en-bloc sale sites that have not been granted planning approval yet. In total, around 23,500 units (including ECs) could be made available for sale later this year or next year.
The Government has significantly increased the supply of private housing on the Confirmed List for the GLS Programmes in 2022 to cater to the strong housing demand and will continue to monitor economic and property market conditions closely and calibrate housing supply to keep the property market stable and sustainable.
What this means is these builders continue to build in response to demand that has started tapering off. In other words, demand decreases while supply increases. The inevitable outcome are a slowdown in sales and a decline in price appreciation or even a price decline.
6) Weak macroeconomic conditions
Higher interest rate environment and slowing global economy has gradually led to higher unemployment rates. Forecasters polled by the Monetary Authority of Singapore expect economic growth to slow to 2.8% next year from an expected 3.5% this year.
With the latest 3M SORA rate having steadily risen through the year from just under 0.2% to 2.6%, someone on a 3M + 1% term structure for their housing loan would have seen interest rate risen from 1.2% to 3.6%, a triple increase in interest expense. Market watchers are also expecting the 3M SORA rate to continue on its upwards trajectory as the US Federal reserve is likely to continue increasing interest rates by at least another 1% to 1.25%.
Closing statements
Regardless of the negative aspects mentioned above, prices remain resilient in Singapore.
For investors, aligning one’s property purchase with national policy is one of the safest avenues to ride on healthy capital appreciation over the longer term.
The government’s Long-Term Plan Review has clearly demonstrated that beyond a 24/7 vibrant Central Business District, jobs are moving closer to homes.
The unveiling of ambitious plans for the world’s first fully automated port at Tuas, the massive Changi Terminal 5 and the new Paya Lebar precinct would present new employment and property growth opportunities. In parallel, the continual expansion of rail transport lines and construction of the North-South Corridor will improve connectivity and unlock property values.
Undeniably, however, over the next few quarters, property demand is expected to moderate, amid multiple headwinds and the impact of the latest cooling measures.
The unabated increases in consumer prices and the upward calibration of mortgage payments are likely to weigh on overall consumer spending and big-ticket item purchases, such as homes and cars.
Analysts expect overall private home prices to rise by about 9% for 2022 following last year’s 10.6% growth, with a further moderation to 1% to 3% growth for 2023.
Inevitably, with such a small growth margin, there will be segments that slow down. We think this will likely be in the Rest of Central Region (RCR) segment which has increased more than 40% in the last 5 years vs the CCR (Core Central Region) which has increased less than 10% in the last 5 years. The OCR (Outside Central Region) segment will likely see a mixed performance being currently in the middle of the pack in terms of performance.
