Is Singapore Real Estate on Track for a Strong and Sustainable Recovery?

Updated: Sep 3, 2021

In today's coverage, we look into three factors supporting the strong recovery of Singapore's real estate market and analyze if it is sustainable in the long run.

1. Re-opening is on its way, supported by an aggressive nation-wide vaccination rollout

The Ministry of Trade and Industry upgraded it's GDP growth forecast range for 2021 to 6%-7% (previously 4%-6%) based on their analysis of economic performance across key industries in Singapore. Progressive easing of local and international restrictions due to higher vaccination rates will support the recovery of consumer-facing industries (less so for tourism and aviation), allowing them to match up to the recovery boom that outward-oriented sectors like manufacturing have enjoyed for the past year.

We believe that this will continue to drive the growth of property price indexes across all sectors including Residential, Commercial and Industrial. One key future indicator that we should take note of is wage growth (3.0% in 2021, up from 2.5% in 2020) - which will eventually promote stronger affordability and purchasing power for property buyers.

2. We are witnessing condo buyers rotating into the condo resale market, driven by concerns of increasing new launch prices

Resale volumes have rebounded aggressively partly due to the recently price increases of new launch projects islandwide. As $PSF cost of new launch projects are reaching an all time high for their respective districts, consumers are looking into the resale market for "better deals". We could potentially see a narrowing of the new launch and resale price gap (47% in 1Q2021, up from 35% in 2020) as current listings in the resale market are already reflecting strong seller sentiments with most listing at record high prices for their developments and neighbourhoods.

3. BTO delays and the increasing need for personal space remains the main catalyst for growth in the HDB and condo resale markets

BTO delays, increasing need for personal space and the widespread adoption and acceptance of work-from-home practices across most industries have been regarded as the key drivers of growth for the HDB resale market.

HDBs forms the backbone of Singapore's residential real estate market. As 80% of households reside in HDBs, a booming HDB resale market has a very direct impact on the future prices of condominiums and apartments. On the ground, we see a majority of HDBs transacting with a positive cash over valuation, driving the HDB resale price index to an all time high. We are also witnessing an unprecedented number of flats sold at above the $1 million mark, which leads us to guess that a good number of these sellers will have sizeable cash proceeds that will allow them to upgrade to a condominium or equivalent property type.

4. Even with looming cooling measures, we still see great value in holding onto Singapore real estate

As the Singaporean saying goes "it's better to hold and wait, instead of trying to time the market"

Cooling measures have been part and parcel of Singapore real estate for decades. Most work in ways to either increase tax on property transactions, or limit affordability and speculation among investors. The most recent terms that we are familiar with are buyer's stamp duty (BSD), additional buyer's stamp duty (ABSD), seller's stamp duty (SSD), mortgage servicing ratio (MSR), total debt servicing ratio (TDSR) and loan-to-value (LTV). In light of the heated real estate market, we can't rule out the fact that a possible tightening of TDSR and LTV limits could be introduced in the coming years. However we know that in 2020, Singapore had no risk of a real estate bubble forming based on the UBS Global Real Estate Bubble Index. Hence, a tightening of the above mentioned policies might stagnate prices momentarily, but we foresee that prices will continue on the uptrend in the medium to long term since the market is already acclimatized to cooling measures that are frequently introduced to curb speculation.

Overall, strong economic data, positive consumer sentiments towards private residential property in Singapore and loose monetary policies gives us greater confidence that we will enter Q42021 with even stronger momentum. For investors looking to properly hedge against the likelihood of cooling measures - look into investment properties that are in neighbourhoods with stronger representation of owner-occupied units like Clementi, Bishan, Potong Pasir and Siglap. Also, do ensure that you are comfortable with a longer holding period of 8 - 15 years, in order to be better prepared for any potential setbacks.

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