It appears the recent real estate boom experienced in Singapore may have drawn to a close as the newest evaluations pale in comparison to the rampant price increases seen as recently as 2010. Singapore’s Urban Redevelopment Authority reports that its private residential real estate price index has slipped 1.1% when adjusted for inflation, which is the polar opposite of the 34% jump in adjusted value seen in the second quarter of 2010. Even so, the outlook is good for the country as this was the result of effective cooling measures implemented by the government. Optimism for a growing economy and interest from foreigners will likely keep the market competitive. For more on this continue reading the following article from Global Property Guide.
During the year to Q4 2012, Singapore’s private residential property price index rose 2.8%, according to the Urban Redevelopment Authority (URA). In contrast, when adjusted for inflation, the property price index actually fell by around 1.1% over the same period.
Landed terrace (+5.02% nominal) and non-landed apartments (+5.30% nominal) enjoyed relatively good growth, while non-landed condominums were weaker (+0.98% nominal), based on the figures from URA.
Private residential property prices rose 1.8% (1.1% in real terms) q-o-q in Q4 2012, according to the URA.
- In Core Central Region, prices of non-landed private residential properties rose by 0.7% q-o-q.
- In the Rest of Central Region, property prices were up by 0.9%.
- Outside Central Region, property prices rose by 3.8% q-o-q.
The rise in the nominal price index pales in comparison with the 38.2% price hike (34% in real terms) during the year to Q2 2010, a period which saw the fastest price-rises of the recent boom. Measures were introduced in October 2012 to limit mortgage tenure to 35 years, and to lower to 60% the LTV ratio for loans longer than 30 years, or loan periods extending beyond age 65.
Additional measures announced in January 2013 included:
- A 5% to 7% across the board rate hike in Additional Buyer’s Stamp Duty (ABSD).
- Tighter LTV limits and a 10% to 15% increase in the minimum cash down payments also await potential buyers with at least one existing housing loan.
These market-cooling measures have been effective, as evidenced by the slower property price rises. There has also been a drop in short-term speculation (as indicated by an 18% y-o-y decline in sub-sales in Q4 2012) and a fall in the proportion of private residential properties bought by foreigners and companies (7% in Q3 2012, down from 20% in Q4 2011).
Despite this during the last ten months of 2012 19,792 homes were sold, 21% higher than the previous record of 16,292 transactions (in 2010), according to Savills Singapore. The strong demand was in part due to record-low interest rates and developers’ marketing strategies. In particular, the cooling measures have not had much effect on executive condo (EC) buyers. Sales of ECs are estimated at 4,000 units for 2012, near the combined sales figure for 2010 and 2011 of 3,935 ECs.
The Singaporean economy expanded by 1.3% in 2012, down from 5.2% in 2011, a sharp slowdown form 2010’s 14.8% growth. The Ministry of Trade and Industry (MTI) expects a 1% to 3% expansion of Singapore’s economy in 2013.
The government’s cooling measures have worked
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. The government also actively participates in almost all aspects of housing, including planning, construction, and housing finance.
The seventh round of cooling measures since 2009 were announced by the government in January 2013. Specific measures for residential properties include:
- An Additional Buyer’s Stamp Duty (ABSD) rates hike of around 5% to 7% across the board. This will be imposed on Permanent Residents (PRs) first residential property purchase, and on Singaporeans’ second property purchase.
- Even tighter LTV limits on housing loans for individuals who already have at least one outstanding loan, as well as non-individuals such as companies.
- LTV limits on second housing loans are down from 60% to 50%; or 30% if the loan tenure is more than 30 years or extends past age 65.
- LTV limits for 3rd houses onwards were cut from 60% to 40%; or 20% if the loan tenure is more than 30 years or extends past age 65.
- LTV limit for non-individual borrowers lowered from 40% to 20%.
- An increase from 10% to 25% in the minimum cash down payment for individuals applying for a second or subsequent housing loan.
Sales transaction volumes were expected to hit 4,000 units for 2012, near the combined EC sales volume in 2010 and 2011, according to Savills Singapore. However the last quarter was weak. In Q4 2012, sales transactions were 22.8% down q-o-q to 7,931 units, according to the URA. The quarterly sales reduction was felt across the board.
- 4,296 units of uncompleted private residential properties were sold in Q4 2012, 25.8% down on the previous quarter. Sales of completed private residential properties declined by 55.5% to 57 units during the same period.
- Sub-sales fell 19% q-o-q to 520 units.
- Re-sales fell by 17.6% q-o-q to 3,058 units during the same quarter.
In Q4 2012 there were 277,620 completed private residential units available, with an occupancy rate of 94.6%, and around 86,475 uncompleted units, according to the URA.
Falling interest rates
Singapore’s mortgage market is one of the most developed in Asia. During the past decade, it expanded sharply, from approximately 27.5% of GDP in 2002, to 44.7% of GDP in 2012.
Total outstanding housing loans in 2012 were 15.9% up on the previous year at amounted to SG$152 billion (US$122.6 billion), 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.
However, the interest rate on housing loans has fallen to a record low of 2.95% since October 2012, down from 4.41% from December 2010 to March 2012. Variable interest rate mortgages dominate the market.
The rental market is limited
Singapore has a small rental sector, mostly serving expatriates. In the local sector 81% of all rental units are owned by the HBD.
In Q4 2012, rents of private residential properties rose by only 0.7% q-o-q, after increasing by 0.9% the previous quarter, according to the URA. Over the same period, rents of non-landed properties:
- rose by 0.7% q-o-q in Core Central Region (CCR)
- rose by 0.6% q-o-q in the Rest of Central Region (RCR)
- rose by 1.2% q-o-q in Outside Central Region (OCR)
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).
Based on Global Property Guide’s research, dated May 2012, Singapore continues to have poor rental yields. Rental yields in Singapore’s Core Central Region range from 2.58% to 3.01%, with smaller rental units gain higher yields. The average rental yield in May 2012 fell slightly to 2.8% from 2.84% the previous year.
The new series of cooling measures recently introduced by the government is expected to drive some potential buyers to rent properties instead of buying in 2013.
According to Savills, high-end rental rates could correct by 5% to 10% in 2013, falling to below SG$5 (US$4.02) per sq. ft. per month, through limited rental budgets and increasing supply of luxury homes. However the market is supported continued placing cross-border assignments by organizations, as well as the lease renewal by current expats.
Foreigners have pushed up property prices
Singapore has experienced an influx of expatriates in recent years. 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. Singapore now has the sixth-highest percentage of foreigners in the world: about 38% of Singapore’s population are foreigners. Of these 10% are permanent residents, and the remaining 28% expats.
Foreign buyers have contributed to Singapore’s strong recent house price increases. Though discouraged by the ASBD, purchases by non-permanent residents increased in Q3 2012 to 511 units, up from 360 units in Q1 2012. In the first half of Q4 2012, foreign purchases accounted for around 23% of the total residential property sales transactions in Singapore, according to Savills Singapore. Malaysians, Indonesians, Chinese, and Indians were the biggest foreign property buyers.
Tighter immigration rules are being imposed by the government, due to strong popular disquiet. Beginning September 1, 2012, foreign workers were required to earn at least SG$4,000 (US$ 3,150) per month, up from the previous SG$2,800, to be able to sponsor their spouses and children for their stay in Singapore. Some were not allowed to bring parents and in-laws on long term visit passes.
Foreign workers whose families are already in the city state are not affected by the new rules, unless they switch employers on or after the said date.
“Cautiously positive” economic outlook in 2013
The Ministry of Trade and Industry (MTI) projects a “cautiously positive” economic outlook for Singapore, with 1% to 3% GDP growth in 2013.
Though the weakening global economy has put pressure on Singapore’s exports, with non-oil domestic exports (NODX) rising only 0.5% in 2012, the ‘local’ unemployment rate fell to 1.8% in December 2012.
In January 2013, inflation eased to 3.6%, down from 5.2% in 2011, due to the newly introduced property cooling measures, and continued currency appreciation. The Monetary Authority of Singapore tightened its monetary policy in April 2012, allowing the Singapore dollar to gain value faster. In January 2013, the Singaporean dollar (SGD) was at USD1 = SGD1.2285.
This article was republished with permission from Global Property Guide.