Singapore Home Prices Cooling

The Urban Redevelopment Authority reports that real estate prices in Singapore is in a cooling phase due to government measures enacted to slow the escalating costs of homes. …

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The Urban Redevelopment Authority reports that real estate prices in Singapore is in a cooling phase due to government measures enacted to slow the escalating costs of homes. Prices are still increasing but at a significantly slower rate, especially when compared to the 38.2% prices increase in second quarter of 2010. Savills Singapore reports that home prices in the high-end market are still rising rapidly despite strict government controls that are a constant element of the country’s housing market. For more on this continue reading the following article from Global Property Guide.

Property price increases in Singapore have now slowed for eight consecutive quarters, as government measures to cool down the market take effect. 

During the year to end-Q2 2012, Singapore’s private residential property price index rose by 1.9%, according to the Urban Redevelopment Authority (URA). However, when adjusted for inflation, the property price index actually dropped by about 3.3% over the same period.

This is in sharp contrast with the 38.2% price increase seen during the year to Q2 2010.

The secondary market seems more resilient than the primary market. The median price of non-landed resale homes rose by 7% y-o-y to SG$1,031 (US$820.5) per sq. ft. in Q2 2012, according to URA. On the other hand, the median price for new homes fell by 3% y-o-y to SG$1,144 (US$910.4) per sq. ft over the same period.

At the upper-end of the market, house prices are still rising. The average unit price of non-landed high-end homes rose by 7% to SG$2,300 (US$1,830.4) per sq. ft. during the year to Q2 2012, based on figures released by Savills Singapore. However, prices are still 8% lower compared to the peak price of SG$2,495 per sq. ft. reached in Q4 2007.

In a quarterly basis, private residential property prices in the country rose 0.4% (-0.8% inflation-adjusted) in Q2 2012, according to URA. However, the overall figures conceal different price movements per region. In Q2 2012:

  • In Core Central Region, prices of non-landed private residential properties rose by 0.6% q-o-q, from a fall of 0.6% in the previous quarter.
  • In the Rest of Central Region, property prices were almost unchanged.
  • Outside Central Region, property prices rose by 0.4% q-o-q, from a quarterly increase of 1.1% in the previous quarter.

To restrain the property bubble the government has taken a dual-pronged strategy – increasing land supply, and imposing market curbs. In January 2011, the government took the following steps:

  • Loan-to-value (LTV) ratios on second mortgages were lowered to 60% of the appraised value of the property
  • The Seller’s Stamp Duty was raised, and more taxes on residential property transactions  introduced

Then, in December 2011, the government introduced an additional buyer’s stamp duty of 10% for foreigners and non-individual buyers.

These property market cooling measures have been effective, as evidenced by slower property price rises, the drop in short-term speculation (as indicated by low volume of sub-sales) and the drop in the proportion of private residential properties bought by foreigners and companies (7% in H1 2012 from 20% in 2011).

Total primary market sales plunged 23% in May 2012 from the previous month, after falling by 12% in April 2012.

From January to May 2012, total new homes launched reached a record 14,272 units.

It is interesting to compare recent full-year launch figures:

2011: 20,245 units

 

2010: 18,234 units

 

2009: 14,103 units

 

2008: 6,107 units

Source: Savills Singapore

Major projects launched in Q2 2012:

  • Eight Riversuites (with 862 units) located at Whampoa East
  • 1 Canberra located (with 665 units) at Canberra Drive
  • River Isles (with 610 units) located at Punggol Central
  • Flo Residence (with 530 units) at Punggol Field Walk
  • Sky Habitat (with 509 units) at Bishan Street

As demand has weakened while supply has increased, the number of unsold units reached a historical high of 8,245 units in May 2012. With more developments planned for launch in H2 2012, the number of unsold units is expected to rise further during the end of the year.

The total property sales volume is expected to increase to about 2,300 units in July 2012, before falling to around 1,300 units to 1,700 units per month in August and September, according to Savills Singapore. In addition, prices of new homes are projected to remain steady in Q3, while prices of high-end homes are expected to continue falling by another 1% to 2% in the coming months.

The Singaporean economy expanded by 4.9% in 2011, after registering a 14.8% growth in 2010, a 1% drop in 2009, and a 1.7% growth in 2008. From 2004 to 2007, the economy grew by an average of 8.5% per year.

In the first quarter of 2012, Singapore’s real GDP expanded by 1.6% from a year earlier.

Anti-speculative measures

With limited land and resources, Singapore has one of the world’s most interventionist housing market policies. The government strictly controls and monitors the use of land and the allocation of housing units to citizens and other residents. The government also actively participates in almost all aspects of housing including planning, construction, and housing finance.

The government imposed anti-speculative measures in February 2010. It also announced an aggressive plan to increase land supply in May 2010.

In August 2010, the government tightened financing and restricted homeownership of flats provided by the Housing and Development Board (HDB). Another measure targeting the private homes market requires homeowners to pay a 3% stamp duty on the sale price of properties held for less than 3 years. In addition, the minimum cash payment was doubled to 10% for those already servicing another mortgage.

Then in October 2010, new curbs on foreign ownership of landed homes were unveiled, which involves raising the penalties for those found breaching the Residential Property Act.

These measures are on top of those released in September 2009:

  • reinstating the Government Land Sales (GLS) Confirmed List in H1 2010, and replenishing the supply of Reserved List sites in the GLS;
  • disallowing the Interest Absorption Scheme and interest-only loans; and
  • non-renewal of assistance measures for property developers announced in the 2009 budget, when these expire in early 2010.

Sales plunged

In the 3rd quarter of 2010, the total sales transactions dropped by 16.1% q-o-q to 8,513 units, according to URA. The decline in sales was seen across the board.

  • The number of uncompleted private residential property sold by developers fell by 10% q-o-q to 3,561 units in Q3 2010 while completed private residential property dropped by 1.3% q-o-q to 77 units
  • Sub-sale fell by 20.1% q-o-q to 703 units over the same period
  • Re-sale plunged by 20.3% q-o-q to 4,172 units in Q3 2010

Total sales transactions plunged by 33.2% in Q3 2010 from the same period last year.

In the 3rd quarter of 2010, there was a total supply of about 64,358 uncompleted units of private housing in the country, based on the latest figures released by URA.

Developed mortgage market, stable interest rates

Singapore’s mortgage market is one of the most developed in Asia. The size of the mortgage market was approximately 34.5% of GDP in 2009, up from 29.1% of GDP in 2008.

The total amount of outstanding housing loans rose by 14.9% to around SG$91.4 billion (US$71.1 billion) in 2009, from about SG$79.6 billion (US$61.95 billion) in the previous year, according to the Monetary Authority of Singapore (MAS).

Interest rates are relatively stable in Singapore, as monetary policy is implemented through the exchange rate, i.e. the foreign exchange rate is used to adjust economic growth and inflation.

The prime lending rate has been 5.38% since January 2008. The interest rate on housing loans has been at a record-low of 5.23% since July 2010, down from 5.73% imposed from June 2006 to Feb 2008. Low and stable interest rates have provided security for borrowers, even though variable interest rate mortgages dominate the market.

Small rental market

With the most successful home-ownership program in the world, the rental sector in Singapore is small, mostly serving expatriates. The local private rental sector is much smaller, because the HDB still owns about 81% of all rental units.

In the 3rd quarter of 2010, rents of private residential properties rose by 3.6% q-o-q, after a 5.9% rise in Q2 2010, according to URA. Over the said period, rents of non-landed properties:

  • rose by 3.6% q-o-q in Core Central Region (CCR)
  • increased by 3.7% q-o-q in the Rest of Central Region (RCR)
  • rose by 3.6% q-o-q in Outside Central Region (OCR)

The average monthly rent of high-end non-landed residential properties tracked by Savills Singapore was SG$5.15 (US$4) per sq. ft. in the 2nd quarter of 2010.

Rent increases have typically lagged property price changes in Singapore, leading to low yields. For instance, residential prices rose almost 100% between 1990 and 1996, but rents rose by only 52%.

However in the most recent boom, the sudden influx of expatriates led rents to rise faster than property prices. From Q2 2004 to Q2 2008, the residential rental index rose by 82% while the price index rose by only 58%. When the residential price index started falling, the rent index also fell but at a slower rate (24.9% vs. 18.6%, respectively from Q2 2008 to Q2 2009).

As the economy recovered quickly from the global crisis, both prices and rents accelerated. House prices rose by 22.9% in Q3 2010 from a year earlier, while rents rose by 15.6% over the same period.

Nevertheless, rental yields remain relatively low in Singapore. Global Property Guide research shows that rental returns in Singapore range from 2.9% to 4.3%, with smaller units earning higher yields. The average rental yield of 3.5% in May 2009 was unchanged from last year.

Foreign buyers are important

Singapore has a total population of about 5 million, of which around 64% are Singaporean citizens, about 11% are permanent residents, and the remaining 25% are expats. The country’s population has the sixth-highest percentage of foreigners in the world. About 42% of the population of Singapore are foreigners.

Singapore has experienced an influx of expatriates in the past years, and some foreigners have preferred to buy rather than face escalating rentals, especially if they are going to be in Singapore for more than a couple of years.

Foreign buyers contributed to strong house price increases recently. In the first half of 2010, foreign purchases accounted for about 25% of the total residential property sales transactions in Singapore, according to Savills Singapore. Malaysians, Indonesians, Chinese, and Indians were the biggest foreign property buyers in the country.

Export-dependent economy slowing

The global financial crisis may be seriously hitting Singapore’s export-dependent economy.  In the second quarter of 2012, the Singaporean economy unexpectedly contracted by 1.1% from the previous quarter, as debt woes in the eurozone dampened demand.

In 2011, Singapore’s economic growth moderated to 4.9%, due to a slump in the manufacturing sector. The economy grew strongly in 2010, with a real GDP growth rate of 14.5%, according to the IMF. In 2009, the Singaporean economy contracted by 0.8%.  Economic growth for 2008 was just 1.5%, significantly down from 8.8% GDP growth in 2007, 8.7% in 2006, 7.4% in 2005 and 9.2% in 2004.

The economy is expected to grow by about 1% to 3% in 2012.

The country’s inflation rate was 5.2% in 2011, up from 2.8% in 2010, 0.6% in 2009, but down from 6.6% in 2008. In May 2012, inflation slowed to 5% from 5.4% in the previous month, though it is still high by historical standards and is the highest in Southeast Asia after Vietnam.

To curb inflationary pressures, the country’s central bank, the Monetary Authority of Singapore, tightened its monetary policy in April 2012,  allowing the Singapore dollar to gain value faster.

The Singaporean dollar is one of the best performing Asian currencies. In July 2012, the Singaporean dollar (SGD) exchange rate reached USD1 = SGD1.256. While the strong local currency helps ease inflation (in fact, Singapore’s Central Bank manages the currency with inflation targeting in mind), some economists fear that it could dampen the country’s export competitiveness.

This article was republished with permission from Global Property Guide.

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