A Revisit To Singapore's Property Market In 2021
Can we always follow news article to speculate on how the property market does? Or is it better to speak to a trusted real estate professional to learn more about what to expect?
Let's find out.
One year ago, circuit breaker happened.
As seen from The Business Times, market analysts were predicting that there will be an 8% full-year drop in private home prices.
Were they right? Well, one year later, we found ourselves in Phase 2 of the restrictions here in Singapore. And from what we have witnessed so far, they couldn't be further from the truth.
Current (Now)
From a The Straits Times article in April, HDB resale prices rose 2.8% and there is also an increase in prices in the resale market as well as among the private homes market.
Private Residential Property Market
Saw an increase of 2.1% in the price index
HDB Resale
Market
Saw an increase of 3.1% in the price index
In other words, HDB resale prices were increasing more than their private residential counterpart, much to everyone's surprise.
At this point, you might be wondering:
Why is this happening?
Here are four reasons:
1. Low interest rates
2. Boosted confidence in Singapore's Property Market
3. Decrease in supply of properties
4. Increase in demand of properties
Low Interest Rates
As seen from the above graph, interest rates are now at an all-time low, compared to 5 years ago in 2017.
This means if a buyer were to take a loan from the bank now, the interest rate would be about 1.1 - 1.2%. It is likely that these rates will remain low as long as the US Federation does not spike the interest rates.
That's because the U.S would also like their economy to recover so that they can continue to flourish post-covid. Locally too, in Singapore, our government would like to continually stimulate the economy, and therefore be motivated to keep interest rates low.
In this win-win situation, governments stimulate the economy, and consumers are able to borrow for less, so that demand for properties will increase.
Boosted Confidence
in Our Property Market
With Singapore entering a covid-induced nation-wide lockdown, and with HDB announcing that a typical BTO flat would take 5-6 years to construct, due to shortage of manpower and delay in building process, more and more young Singaporean couples are realising that by the time they apply for BTO at an average age of 28 years old, by the time they collect the keys for their newly constructed flat, they will most likely be 34 years old when they eventually move in. In the meantime, they are unlikely to stay at their parents' home while waiting for their BTO to be ready.
As such, more and more young couples are starting to explore the resale HDB or private condominiums.
This results in the demand for the resale market in both HDB/private to increase. Naturally, this gives way to an increase in prices for these segments as well.
When a young couple decides to buy a property from the resale market, they are purchasing it from the current owner. These sellers - we call them upgraders - would have held onto the property for a decent amount of time and hoping to sell for a decent profit. After selling, they'd very likely move on forward to get a bigger place for their home. When they look to buy their next property, they might look at new launches, or the resale condominium market, where they'll be buying it from someone else that is doing the same thing as them.
This causes a spill-over effect on the resale condominium market - upgraders who are selling their HDB flat to young couples look to purchasing more expensive private properties, leading to an increase in the prices of resale condominiums.
Taken together, the resale prices of both HDB flats and private condominiums have sharply increased. This trend can be worrying because it may lead to prices being ridiculously overpriced. We have also seen many HDB flats exchange hands for $50,000 to $70,000 above valuation. Not only that, HDB flats selling for more than $1M is gradually becoming the norm now.
Decrease In Supply
Now that we have assessed how the demand in the property market has been affected, we can now take a closer look at supply. There are two areas that we can look at for supply - resale and new launch.
For the resale market, there is a stark contrast between supply and demand. There have been more buyers than sellers in the market, and as a result, we can see a spike in prices.
For new launch properties, they could either be an "en bloc" or "government land sale (GLS)"
Looking at the table for GLS above, there were more than 10,000 GLS released for developers to bid and develop properties on the land.
But due to the shortage of manpower in the construction industry due to covid, less land has been released by the government from developers, as seen from the data in 2019 onwards.
To put things into perspective, in the first half of 2021, only 1,605 units have been released.
With this scarcity in supply, developers may only be able to explore en-bloc options in the upcoming years. This allows successful en-bloc residents to purchase usually higher quantum housing in the market after selling their homes to developers. This cycle leads to an increase for demand in the resale market, and inevitably a spike in prices.
With the government releasing fewer lands for development, developers, who need land in their inventory in order to sell, have a shortage of land, and this may cause them to bid excessively for GLS or En-bloc. However, they will need to be cautious as there is a developer ABSD charge if they are not able to sell all the units of their new launch within a 5 year period. Also, if they do successful bid for a piece of land at a high price, that will also translate into a higher sales price of that new launch in the future, which will affect homebuyers.
Where Should I Buy?
Looking at the Price Appreciation VS Transaction Volume table above, I would recommend buyers to look closely at districts in the yellow shaded box - to enjoy both high margins of price growth as well as high volume of transactions.
As such, we can see that projects within D14 (Aljunied), D5 (Buona Vista/ West Coast/ Clementi New Town) or D19 (Tampines and Pasir Ris) fall within this category.
Looking at the chart, we can tell that the price for the RCR region has increased drastically because more and more Singaporeans are choosing to purchase homes nearer to the city-fringe, as opposed to in the city center.
For investors, it makes sense to invest in a property that is in the CCR (D1, 2, 9, 10, 11) because of its stagnant prices. This could be possibly due to the fact that many countries are experiencing a lock down and foreign investors are unable to fly into Singapore to purchase properties for investment. I know many overseas investors who are watching Singapore's property market and waiting for the bans to be lifted so they can come and make their purchase.
The CCR property price index is thus expected to increase exponentially when travel bubbles are allowed as covid is slowly accepted as an endemic.
If you are thinking of making your first property purchase, and don't know where to begin, contact me for a consultation via phone call/ whatsapp, and we can begin the search for your dream home.
