Despite Q3's drop, the multi-year upward trend in private property prices will contin

Despite Q3's drop, the multi-year upward trend in private property prices will continue.

Rising population and consistent economic expansion meet stable supply.

Oct 28, 2024

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Private property prices dropped in the most recent quarter. The Urban Redevelopment Authority's (URA) private residential property price index fell 0.7% quarter on quarter in the third quarter. This is one of two instances in which the index has fallen in the last 18 quarters.

However, significant condo debuts this month have performed well. Meyer Blue, a high-end project in District 15 by UOL Group and Singapore Land Group, sold more than half of its apartments during its launch weekend, with an average price of S$3,260 per square foot (psf).

City Developments Ltd's suburban property Norwood Grand in Woodlands sold 84% of its 348 units during its debut weekend at an average price of S$2,067 per square foot.

Should a person looking to buy a private home for owner occupation wait for housing prices to fall, or bite the bullet and buy a property right away?

Consider an individual who sold his home in late 2019, right before the Covid epidemic, with the aim of purchasing a replacement property for owner occupation.

That person may have congratulated himself for selling a home ahead of the epidemic, particularly in the darkest days when economies crashed and anxieties about the virus were rife.

However, the same person may have been delayed to acquire a home after pandemic worries subsided, leaving them staring blankly as prices soared back up. Between Q1 2020 and Q3 2024, the URA's property price index for private dwellings increased by 34.6 percent.

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

However, an examination of the major dynamics influencing the private property market reveals that prices may remain mostly positive in the next years.

Economy and Interest Rates

One, the global economy may be doing well, with the United States expected to experience a gentle landing, while China's sluggish economy may benefit from recent stimulus measures.

Sure, there are layoffs in various industries and concerns about Singapore's wage competitiveness. Nonetheless, the unemployment rate here is low, and the government is well-positioned to support the economy if necessary.

Lower interest rates may also benefit homebuyers. For example, a borrower with a S$1 million 25-year home loan will have his monthly installment decrease from S$5,278, based on a 4% annual interest rate, to S$5,006, assuming a 3.5 percent interest rate.

Population and Demographics

Two, while there are concerns about Singapore's low birth rate, the population is increasing. In mid-2024, the total population stood at a record 6.04 million, a 2% increase from the previous year.

The annualised population growth rate was 1.1% from mid-2019 to mid-2024, somewhat higher than the 0.8% seen from mid-2014 to mid-2019. Between mid-2019 and mid-2024, Singapore's population increased by 3.9% to 3.64 million, while permanent residents (PRs) increased by 3.7% to 0.54 million.

As more skilled and rich foreigners become Singapore citizens and permanent residents, the pool of potential private property buyers will grow.

Meanwhile, if the average household size decreases, the number of resident households may increase faster than the resident population. All of this contributes to a continuous growth in home demand.

As the population ages, several older retirees will downsize their homes to save money.

However, due to a tight employment market, the labour force participation rate among older age groups has been increasing and is expected to continue. Indeed, economically engaged older people may help their adult children buy properties, so increasing liquidity in the housing market.

Supply

Third, the supply of private residences looks to be constant. As of the conclusion of the third quarter, there was a total supply of 35,475 uncompleted private residences in the pipeline with planning permissions, excluding executive condos (ECs), with 19,940 units remaining unsold. As of the conclusion of Q4 2019, there were 49,173 uncompleted private residences (excluding ECs) in the pipeline having planning approvals, with 30,162 units remaining unsold.

Generally, the government transfers land with housing components at a gradual pace through the Government Land Sales (GLS) initiative. The non-award of some confirmed list GLS properties with residential components may limit future housing availability.

Meanwhile, with the residential collective sales market slowing, developers have been hesitant to take on new private housing projects.

However, activity in the housing en bloc market may speed up following UOL, SingLand, and CapitaLand Development's revelation over the weekend that they had signed an option to acquire the 99-year leasehold Thomson View Condominium for S$810 million through a collective sale.

Policy

Fourth, Singaporeans' high homeownership rate is unlikely to alter. Across decades, many eligible locals begin their homeownership path by purchasing subsidised Housing and Development Board (HDB) Build-To-Order (BTO) flats. Many purchasers receive various housing grants.

Some BTO homeowners profit by selling their BTO apartments and then purchasing private residences. Given the price disparity between HDB resale flats and private properties, the upward trend in HDB flat resale prices may persist.

Furthermore, locals who exceed the household income ceiling in order to purchase BTO properties, as well as PRs who are unable to do so, frequently purchase resale HDB units. These factors contribute to HDB resale flat values, particularly for larger units in desirable areas, as well as the purchasing power of HDB upgraders.

There are strict property cooling measures. Citizens and permanent residents who acquire several residences, as well as non-PR overseas homebuyers, face high taxes.

Nonetheless, the private housing market has proven robust in the face of cooling measures. Furthermore, any new policy measures must be carefully calibrated, since a severe private home price correction will have far-reaching negative consequences for the financial system and the overall economy.

Individuals who have been waiting on the sidelines to acquire a private property for owner occupation may come to regret not acting sooner.

Still, the same person would be advised to set regrets aside and bite the bullet and buy a home now, since private housing prices are expected to continue their multi-year upward trend.