Feeling the Fomo in new condo market? Mind the choppy seas of higher trade tariffs

Feeling the Fomo in new condo market? Mind the choppy seas of higher trade tariffs

Slower wage growth and higher interest rates will be dampeners

Leslie Yee
The Business Times

Mar 3, 2025

https://www.businesstimes.com.sg/opi...-trade-tariffs

Uncertainty appears to be a powerful tailwind for Singapore’s private housing market. Finance Minister Lawrence Wong, who is also prime minister, noted in his Budget 2025 speech that the US and China are locked in a fierce contest for global supremacy, with both prepared to take assertive actions to advance their own interests, even at the expense of established international norms.

Wong said to expect escalating attempts at containment and counter-containment, with ripple effects that will inevitably draw in other countries, including Singapore. Big power rivalry marked by rising trade tariffs and barriers could harm global economic growth, hurting a small and open economy such as Singapore.

As it stands, the Ministry of Trade and Industry is forecasting gross domestic product growth for Singapore of 1 to 3 per cent in 2025, down from the 4.4 per cent GDP growth achieved in 2024.

Amid rising trade tariffs and heightened global economic uncertainty, buyers are frenziedly snapping up units at major new condo launches here. Indeed, many people may be buying for the fear of missing out (Fomo).

Parktown Residence – a 99-year leasehold integrated development in Tampines – sold 1,041 units or more than 87 per cent of its 1,193 units at an average price of S$2,360 per square foot (psf) during its launch weekend in February.

In January, 99-year leasehold residential development The Orie, which is located in Toa Payoh, sold 668 units or around 86 per cent of the 777 available over its launch weekend at an average price of S$2,704 psf.

https://i.imgur.com/rw1U13I.png

Certainly, many people view Singapore homes as solid safe-haven assets. The private housing market is stable and transparent. The country scores highly for political stability, social cohesion, public infrastructure and long-term planning, among others.

Risks from tariffs

Nonetheless, buyers might be underestimating the potential damage to housing demand here from rising trade tariffs.

One, rising trade barriers can slow global trade, thereby hurting the prospects of many businesses. This implies less rosy employment and wage prospects for many salaried professionals, as well as business owners here – who are key sources of private housing demand. Also, job insecurity may rise as trade gets disrupted and economies slow.

People typically upgrade their dwellings when they are confident of job or business prospects. Might a potential rise in pessimism over said prospects because of heightened global economic uncertainty cause a pullback in home-buying activity?

Two, increasing economic protectionism could lead to higher consumer prices. Think of a US customer either paying more for an item that is made in China because of higher tariffs or buying from a less cost competitive supply source than China. In short, inflation could be higher because of rising trade barriers. In turn, interest rates may face upward pressure as central banks try to combat inflation.

Many buyers here use loans to help fund their condo purchases. Higher interest rates will hurt the purchasing power of buyers. For example, the monthly instalment for a S$1 million 25-year loan is S$4,486, assuming interest rate of 2.5 per cent a year and S$5,278 or about 18 per cent more based on annual interest rate of 4 per cent.

Three, property buyers and owners here might see growing risk of higher property-related taxes should weaker economic conditions due to rising trade tariffs reduce the amount collected in corporate and individual income taxes. For financial year 2025, the estimated revenue from corporate income tax, personal income tax, asset taxes and stamp duty are S$32.7 billion, S$20.2 billion, S$6.9 billion and S$5.9 billion, respectively.

There are increasing fiscal needs to fund healthcare spending on an ageing population, among others. Should economic uncertainty lead to weaker corporate and personal income tax takings, homes may need to bear a higher tax burden, especially as taxing private homes more can contribute to tackling wealth inequality.

Four, many countries have weaker fiscal positions. If public purses of various countries come under strain from slower global economic growth due to rising trade protectionism, various overseas governments might try squeezing more from their nationals, particularly those who live and invest abroad.

Singapore permanent residents (PRs) are a vital source of private housing demand here. Home-buying activity here by foreigners who are PRs could slow due to actions by foreign governments in a world of rising nationalism.

The long view

Singapore homes have been great for locals to build wealth over the first 60 years of the country’s independence.

Going forward, many locals can expect to continue banking on homeownership to build wealth. Many start their homeownership journey by buying a Build-To-Order (BTO) flat, which is sold at a subsidised price, from the Housing and Development Board or HDB. And efforts to ramp up supply of BTO homes together with other measures have made it easier for first-timer families to secure BTO flats.

A couple who snares a four-room BTO can likely reap a profit of several hundred thousand dollars when they sell their flat upon reaching the minimum occupancy period. And current demand for HDB resale flats is generally robust. The wealth created from selling one can, in turn, be parlayed into buying a condo home.

Still, home prices have risen substantially over the years. Having a condo unit double or treble in price when the entry price years back was S$600 psf is much easier compared with say S$2,400 psf today. Add to this a tougher economic backdrop. By being innovative, Singapore can earn a good living through being useful to the world. Nevertheless, Singapore will not be immune from the pernicious effects of slower global economic growth.

Buying a condo home here, especially one in a project with strong attributes, can be a good use of money. However, potential buyers should keep cool amid the challenge of securing a choice unit in a popular new condo launch – do not bet excessively on a dream new condo home, and keep some liquid funds available to navigate the choppy seas ahead.