The Singapore real estate market has been one of the strongest and most resilient markets globally in recent years.
Since its recent trough in 2017, the Singapore property market has risen more than 40% in the past 6 years. While the private residential property price index declined 1% in the first quarter of 2020 with the onset of the COVID-19 pandemic, this was followed by a blistering 28.1% rise in the next 3 years amidst the global pandemic and other uncertainties.
The rise in Singapore private residential property prices was all the more impressive, bucking a downward trend in many global property markets against a backdrop of the Russia-Ukraine war and aggressive interest rate hikes by the US Federal Reserve. The Singapore government has even stepped in with a few rounds of measures to cool the red-hot market.
In July 2023, the URA reported that the private housing market showed "signs of moderation", as flash estimates showed that private home prices fell by 0.4% (revised to a dip of 0.2% in the official numbers) in the second quarter of 2023. Does this mark the start of a downturn?
In this article, we delve into the following:
A Brief History of Property Prices in Singapore
From third world to first, the transformation of Singapore since its independence in 1965 has been remarkable. In the last 20 years, the city-state has also solidified its status as a global financial hub. This remarkable growth, fueled by forward-thinking leadership, strategic urban planning, and robust economic policies, has not only enhanced its global reputation but also led to a significant increase in property prices, showcasing the country's wealth and its appeal as a top investment location.
Many major real estate markets, including Singapore, experienced significant downturns during the Global Financial Crisis (GFC) between 2007 to 2009. However, while many markets in particular some advanced economies took 5 to 10 years to recover to pre-GFC levels, the Singapore real estate market took less than a year to do so. Indeed, home prices in Singapore jumped over 60% from mid-2009 to its 2013 peak, as speculative buying surged backed by the availability of cheap financing due to global central bank monetary easing.
To curb this, the Singapore government imposed successive and increasingly tough measures on buying, selling, and financing. These included the introduction of an additional buyer's stamp duty (ABSD) in 2011, as well as limits on the proportion of an individual's income that could be used to service loans in 2013 - the total debt servicing ratio (TDSR) for private property buyers, and the mortgage servicing ratio (MSR) for public housing purchasers. For four years between 2013 to 2017, Singapore home prices thus drifted steadily lower.
Minor adjustments were made to the seller's stamp duty (SSD) and the TDSR framework in March 2017. While it did not herald the rollback of other measures (indeed, the government reiterated that the current set of property market measures remained necessary), the small "loosening" of measures lifted sentiment and proved to be a turning point for the lacklustre market. Bottoming in the second quarter of 2017, Singapore real estate prices have risen more than 40% in the past 6 years almost uninterrupted.
Even a global pandemic caused just a small blip, as the URA property price index slipped 1% quarter-on-quarter in 1Q 2020 with the onset of the COVID-19 global pandemic in early 2020. Prices then rose for the next 3 years, with the country's economic resilience, bolstered by the country's robust response to the pandemic and stimulus measures, as well as supply constraints during the pandemic, being major factors that have continued to lift Singapore property prices to new highs.
Why did the URA Property Price Index Dip in the Second Quarter of 2023?
In the most recently reported quarterly numbers, the URA reported a 0.2% dip in the property price index for 2Q 2023, marking the first quarterly decline since 1Q 2020.
It would be a surprise to some, since Singapore property prices seem to have defied gravity for some time. Globally, there have continued to be major geopolitical concerns, and inflationary pressures have necessitated aggressive monetary policy tightening by many central banks. Borrowing costs have risen globally, making it more expensive for buyers and mortgagors to secure and service loans, causing corrections in major property markets including the US and the UK.
Locally, as property prices in Singapore continued to rise rapidly through the pandemic, concerns of a property bubble grew more prominent, and the government has acted accordingly to cool real estate prices and dampen rising living costs. Three rounds of property market measures were imposed since 2021, with the most recent set of measures in April 2023 seeing ABSD doubled for foreigners to a hefty 60% and also increased for Singaporeans buying their second residential property. Coupled with news of an increase in property supply and the reality of higher borrowing costs, some buyers likely decided to adopt a wait-and-see approach, contributing to the halt in property price increase.
Will Property Prices Fall, or Continue to Rise in 2023 and Beyond?
Economic growth is a key determinant of property price growth, and the longer-term outlook for the Singapore economy and property remains positive. It is also important to consider if the market is over-valued, which can signal vulnerabilities and the risk of future corrections, or fairly/under-valued, which may suggest room for growth.
Global investment bank UBS publishes the Global Real Estate Bubble Index annually. Considering factors such as price-to-income, price-to-rent, and mortgage-to-GDP ratio, the index attempts to provide an indication of the fundamental valuation of global housing markets. After 2 years at 'overvalued', Singapore scored a "fairly valued" in the 2023 index, released in September 2023. This echoed an update that Minister for National Development Desmond Lee had given earlier in July, where he noted that there are "signs that the property market and rental prices are stabilising" in Singapore.
Short-term fluctuations are harder to predict, and can be influenced by many factors. For instance, an unexpected 25bps rate hike or lack thereof, an unforeseen fallout from the recent money laundering scandal. The timing and type of new launches to the market could also be a factor. To stay informed, just follow us on Realvestor for more.
About The Author
In her former life as an equity analyst, Evon analyzed companies and stocks to find the best ones for her investors to put their money in, with over a decade of consistent outperformance. Now as a realtor, she enjoys using her analytical skills to help her client secure the best properties to invest in, and finds the greatest joy in journeying with clients towards their dream homes and ideal units.
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