How to Navigate Singapore's Property Market in 2022

2021 in a nutshell

2021 has been a great year for the property market in Singapore. Private home prices for condo and landed were up 10.6% year-on-year and HDB resale prices were up 12.7% year-on-year. Both segments achieved the highest annual growth rates in 11 years since 2010 when Singapore emerged strongly from the global financial crisis.

A remarkable year for condo new launches

Core demand for condo new launches in 2021 came from HDB upgraders, with over 25,000 HDB flats reaching their Minimum Occupation Period (MOP) last year. As the Resale HDB Price Index in October 2021 surpassed the last peak in April 2013, a large number of HDB owners who purchased their resale flats back in 2012 to 2013 looked to cash out on their flats and upgrade, as they were finally out of negative sales territory. This upgrading momentum is clearly driven by local demand and is evident in the spectacular launch performance of RCR and OCR new launches in 2021 including Clavon at Clementi, Normanton Park at Kent Ridge, Mori at Guillemard Road, Pasir Ris 8, Ki Residences at Sunset Way, The Commodore at Canberra and The Watergardens at Canberra among others.

Investors on the other hand were a tad bit more cautious due to the uncertainty of future interest rate hikes, which would dampen future returns. They heavily scrutinized properties in the CCR and only selected prized iconic assets with strong upside and rental potential. In particular, Jervois Mansion at Jervois Road, Irwell Hill Residences at Great World, Park Nova at Tomlinson Road, Canninghill Piers at Clarke Quay and Jervois Mansion were identified as great buys and did exceptionally well. There were common traits among these investment-grade properties - They were either iconic in nature by design or location, or located in neighbourhoods undergoing urban transformation and rejuvination. Park Nova, an iconic architectural marvel by Shun Tak Holdings launched in May 2021 from $4,2xxpsf up, yet has sold 60% of total units till date, outperforming all other new launches in the Orchard Road enclave despite being priced ~$1000psf or more higher than the rest.

The impact of 16 December 2021 cooling measures

The TDSR threshold was tightened from 60% to 55%, resulting in a ~8.33% decrease in loan eligibility for a 30yr loan tenure. For condo buyers previously limited by their loan eligibility, they will probably have to downgrade by 1 sub-tier in layout within the same condo they are considering e.g. from 2 bed 2 bath to 2 bed 1 bath. For condo buyers previously limited by downpayment, with an excess of >8.33% in loan eligibility, there is no change in affordability as LTV for private property remains at 75%. Hence, the tightening of TDSR thresholds should not have an excessive downward pressure on prices as buyers have not been priced out of the market.

ABSD was raised for 2nd property purchase for SC and SPR, and all property purchases for foreigners. I see this increase in ABSD as one that primarily targets foreigner purchases, as local buyers have been creative in recent years utilizing decoupling and buying in trust or directly under children's name strategies to avoid ABSD.

Remittable ABSD for developers also increased by 10%, resulting in larger upfront capital investments and credit facilities required for undertaking new projects. This will result in developers bidding more cautiously during the upcoming Government Land Sales (GLS) exercises, and also pricing in additional opportunity and interest costs required from capital investments and credit facilities into future launch prices. Inevitably, if developers are unwilling to compromise on margins, it will result in an upward pressure in prices and further stress on the market, which is already tainted by supply shortages.

The LTV limit was tightened for HDB loans, from 90% to 85%. This will unlikely affect HDB resale prices much as the majority of HDB transactions driving up prices are from newly MOP estates demanding premium prices, with a large number of buyers taking on bank loans to leverage on lower interest rates and higher income levels.

The above measures are a slight tightening of existing policies and not brand new policies. It will slow the growth but not cause a strong downward pressure in prices. This is unlike the cooling measures in 2013 where new frameworks like TDSR and MSR were introduced. A "sustainable property market" and "increase in housing prices relative to income trends" is what the Government seeks to achieve. Damaging the market in the medium to long term is not in their best interest.

As inflation is still rising, interest rates are still low, and new home supply remains low, price movement will heavily depend on monetary policy (speed of rate hikes), wage growth and unemployment levels (currently recovering). I do see that the market will slow or be relatively flat for the first quarter of 2022 as consumers try to make sense of future implications of the new cooling measures. Perception, pessimism and a "hold and wait to see" mentality has a bigger part to play in price action rather than a decrease in actual purchasing power. However, we should see momentum returning to the market in later quarters of 2022, or when en-bloc activity resumes.

How should we navigate the property market in 2022 and beyond?

As history has proven, time in market beats timing the market as there is no definite way of predicting market peaks or market bottoms - similar to market cycles in the stock market. If we had waited a few more months or years back in late 2016 thinking that the market will continue to decline, we would have missed out on 15 to 20% of potential capital gains in the private residential markets as of 2021. What was the indicator back in late 2016 hinting a potential market U-turn in 2017? It was the en-bloc wave that started in the 2nd quarter of 2016, where cash rich en-bloc home owners flooded the resale and new launch markets with aggressive purchasing behavior and optimism, reviving a market that had been on a downtrend since 2013.

Government the almighty

In Singapore we have a unique property market where the demand and supply is highly regulated by the Government through strict cooling measures and GLS. Cooling measures like TSDR, MSR, LTV and ABSD are tightened and [very rarely] relaxed to manipulate demand, while GLS controls new supply of private residential units. Hence, even if reputable banks like DBS and Morgan Stanley predicts property prices to double by 2030, it will not double if the Government decides that it should not double.

Shortlist properties as if your life depends on it

We should not let the above mentioned reports guide our purchase decision in entirety, but should acquire properties that have strong upside potential based on an analysis framework.

Analysing the as-is potential

Key factors that ensure price growth and resilience of a property include a good, generic and high demand layout, proximity to MRTs, and easy access to amenities, malls and schools. These will support price growth in a market boom, and guarantee greater price resilience in times of uncertainty.

Bedok Residences Integrated Development exemplifies this, as prices continued on an uptrend despite the market downturn between 2013 to 2016. Not only was it strategically located beside the MRT, it was also integrated with Bedok Mall managed CapitaLand boasting a wide variety of retail options.

Analysing the future potential

For a more forward looking mindset, consider a good entry price, the new launch and resale price gap, upcoming urban transformation, future connectivity, new HDB upgraders demand, and en-bloc potential/activity. These are all factors I consider in detail before providing clients with property purchase recommendations.

All developers will market their new launch projects as one with high growth potential. Similarly, many agents marketing a resale unit will only highlight the pros and leave out the cons till asked. Ultimately, consumers have to make the right judgement and final call based on the facts, data and advice available.

Sell your property only if your real estate goals are clearly defined

For those looking to sell your property, ensure that you have a concrete plan for your sales proceeds as the "sell first and see how" mentality will not work in 2022 (neither did it work in 2020 and 2021) due to rising inflation, high demand and low home supply in both resale and new launch markets. You should be clear that the sales proceeds will be used for either:

  • Saving for retirement or children's education

  • Upgrading to a larger or more centrally located property

  • Sell 1 buy 2 strategy (1 for own stay, 1 for investment)

  • Portfolio diversification into other assets (e.g. REITS, stocks, commercial, industrial)

  • Legacy or estate planning

Otherwise, the inability to act on your next course of action after selling your property might decrease your purchasing power in a market boom where inflation is high and units are sold fast.

I hope this article has been insightful and I wish you all the best for 2022! Do reach out to Tyler Lee at +65 8881 8825 or https://wa.me/+6588818825 for any questions.