The multi-year upward trend in private home prices will persist despite the Q3 declin

The multi-year upward trend in private home prices will persist despite the Q3 decline

Stable supply is met by steady economic growth and population growth.

October 28, 2024

CONDOsingapore.com

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The most recent quarter saw a decline in private home prices. In Q3, the Urban Redevelopment Authority's (URA) index of private residential property prices fell 0.7% from the previous quarter. Over the past 18 quarters, the index has dropped twice, including this time.

Major condo launches this month, however, did well. Over half of the units in the upscale Meyer Blue project in District 15 by UOL Group (U14 +0.7%) and Singapore Land Group (U06 -0.5%) sold during the launch weekend, with an average price of S$3,260 per square foot (psf).

During its opening weekend, the City Developments Ltd. suburban project Norwood Grand in Woodlands sold 84% of its 348 units at an average price of S$2,067 per square foot (C09 + 1.27%).

Should someone who has been waiting to purchase a private residence for their own use hope that prices will eventually drop, or should they just go ahead and purchase a home now?

Consider a person who sold his house in late 2019—just before the Covid pandemic—in order to purchase a new residence for their own use.

That individual might have congratulated himself for selling a house before the pandemic, particularly during the worst of times when economies were collapsing and people were terrified of the virus.

However, when pandemic fears subsided, the same person might have been hesitant to purchase a home, leaving them helpless to watch prices swiftly soar back. The URA's private home property price index increased 34.6% between Q1 2020 and Q3 2024.

In the past, there have been down cycles. For instance, between Q3 2013 and Q2 2017, the URA's private residential property price index decreased by 11.6%.

Nonetheless, a review of the main factors influencing the private housing market indicates that prices may be mostly rising over the coming years.

Interest rates and the economy

One, the world economy might be doing well, with the US probably on the verge of a soft landing, and China's slowing economy possibly being helped by a recent wave of stimulus plans.

Indeed, there are concerns about Singapore's wage competitiveness as well as layoffs in various industries. The government is in a good position to boost the economy if necessary, and the unemployment rate is low.

Importantly, lower interest rates may encourage homebuyers. For instance, the monthly installment of a borrower with a S$1 million 25-year home loan drops from S$5,278, which is based on an annual interest rate of 4%, to S$5,006, which is based on an interest rate of 3.5%.

Demographics and population

Two, Singapore's population is increasing despite concerns about the low birth rate. In mid-2024, the total population reached a record 6.04 million, up 2% from the previous year.

From mid-2019 to mid-2024, the annualised population growth rate was 1.1%, which was marginally higher than the 0.8% rate from mid-2014 to mid-2019. The number of Singaporeans increased by 3.9% to 3.64 million between mid-2019 and mid-2024, while the number of permanent residents (PRs) increased by 3.7% to 0.54 million.

The pool of possible private property buyers in Singapore will grow if more wealthy and skilled foreigners become citizens and PRs.

In the meantime, the number of resident households may increase faster than the resident population if the average household size declines. All of this contributes to the steady rise in demand for housing.

Some elderly retirees will devalue their homes in order to free up money as the population ages.

However, due to a competitive labour market, the labour force participation rate among older age groups has been increasing and may continue to do so. In fact, financially engaged older adults may increase housing market liquidity by assisting their adult children in buying homes.

Supply

3. There seems to be a steady supply of private residences. A total of 35,475 unfinished private homes—excluding executive condos (ECs)—were in the pipeline with planning approvals as of the end of Q3, with 19,940 units still unsold. By contrast, as of the end of Q4 2019, there were 49,173 unfinished private homes (not including ECs) with planning approvals in the pipeline, 30,162 of which were unsold.

Through the Government Land Sales (GLS) programme, the government typically releases land with housing components at a gradual pace. Future housing supply may be limited if certain verified list GLS sites with residential components are not awarded.

Given the slowdown in the residential collective sales market, developers have been hesitant to take on new private housing projects, which has resulted in a lack of new homes being built on en bloc sites.

However, UOL, SingLand, and CapitaLand Development announced over the weekend that they have signed an option to purchase the 99-year leasehold Thomson View Condominium for S$810 million through a collective sale, which could increase activity in the housing en bloc market.

Regulation

Four, it is unlikely that Singaporeans' high homeownership rate will alter. Many qualified residents begin their journey towards homeownership by purchasing subsidised Build-To-Order (BTO) apartments from the Housing and Development Board (HDB) over the course of several generations. Numerous homebuyers also get different kinds of housing grants.

By selling their BTO units and then buying private residences, some BTO homeowners make money. Given the price difference between HDB resale flats and private homes, the strength in HDB flat resale prices may continue.

Additionally, PRs who are unable to purchase BTO homes frequently turn to purchasing resale HDB units, as do locals who exceed the household income cap in order to purchase BTO homes. These elements support HDB upgraders' purchasing power and HDB resale flat prices, particularly for larger units in desirable locations.

Tough property cooling measures are in place. Foreign non-resident homebuyers and citizens and PRs who purchase multiple homes are subject to high taxes.

However, despite cooling measures, the private home market has held up well. Furthermore, any new policy measures must be carefully calibrated because a hostile correction in the price of private housing would have severe negative effects on the financial system and the economy as a whole.

A person who has been waiting on the sidelines to purchase a private residence for owner occupancy may come to regret not taking action sooner.

However, given that private home prices are expected to continue their multi-year upward trend, it would likely be prudent for the same individual to put aside regrets and take the risk of purchasing a home today.