Rising prices of real estate in Singapore
Home Central Analysis: Rising prices of real estate in Singapore & the risk of cooling measures
The recent surge in prices in Singapore real estate has gotten current homeowners and investors excited. Recent reports by Colliers predicted that the Singapore housing market is returning to pre-Covid-19 levels. While the reports are based largely on real estate investment across all segments, including commercial property, it also includes residential properties.
Capital appreciation of real estate investments
According to the Colliers report, real estate investment rose 25.8% in Q1 of 2021 and 47.9% since last year. This amount is largely due to the commercial/industrial sector, not residential. (including major deals such as the 50% stake in OUE Bayfront sold for $634 million, the sale of YewTee Point for $220 million, and Boustead Projects' injection of 14 properties into the newly established Boustead Industrial Fund at $469 million.)
Why are commercial properties doing so well?
Despite COVID-19, generous government support – such as rental relief and tax cuts for business tenants have helped tremendously. Additionally, the Additional Buyers Stamp Duty (ABSD) will swing investors into buying commercial property instead of residential.
Singaporean Citizens buying a second home (residential property) would pay ABSD of 12% on the price or value (whichever is higher), while Permanent Residents pay 15% and foreigners pay 20%. Commercial property incurs no ABSD, only the usual Goods and Services Tax (GST) of 7%.
Thus, the commercial segment of Singapore’s private property market may appear more attractive to investors right now. New cooling measures in the property sector will strengthen this effect.
For the residential segment, investment sales reached $1.6 billion in Q1, a rise of 12.9% from Q4 2020 and a 154% increase from last year. This is largely due to the fact that the pandemic was at its peak around Q1 to Q2 of 2020.
A rise in home sales across the board
New private home sales especially the luxury segment also increased significantly in Q1. Transaction volumes increased in March 2021, to 1,368 units and 1,339 units in April 2021. While this is still lower than the peak in January (2,033 units), it does show that there is momentum from 2020 onwards. (The lower transaction volumes in February were due to Chinese New Year, and fewer launches being heavily marketed at the time). Furthermore, not only is the transaction volumes surging, the prices of these sales are also increasing.
Volume and prices of new sale across all districts
Volume and prices of all sales across all districts
Why are real estate prices increasing?
Low- interest rates
Low-interest rate is a huge driving factor. Interest rates are low right now since the last financial crisis. Coupled with the speculation that interest rates are rising in the near future, Singaporeans are more prompted to buy their properties now instead of waiting to secure a low-interest rate on their mortgage payments.
Higher psf, lower quantum
Developers are offering higher prices per square foot, but lower quantum. Developers are making condos in the Core Central Region (CCR) accessible to investors with a lower budget. This is done by shrinking the unit sizes, as they can still be easily rented to singles or couples (who make up the bulk of expatriate tenants). A lower quantum also means higher rental yields and smaller loans; this makes it more probable that investors can meet limitations like the Total Debt Servicing Ratio (TDSR). This allows more investors to jump in the property investment market in Singapore.
The threat of new cooling measures is looming around the corner. With the rapid surge in prices and demand for Singapore properties, it is likely that there will be new cooling measures in place to help manage. Investors may decide to move fast and buy now, resulting in rising transaction volumes and prices, which in turn mandate the new measures.
Singapore is a safe haven
Singapore is attractive to foreign investors as we are one of the very few countries to beat GDP predictions. Our latest growth is expected to be 6% despite COVID-19. Thus, despite the 20% ABSD we impose, investors still view Singapore as a safe haven for property investment. Moreover, Singapore does not charge taxes on capital gains, making it much more appealing for investors going for capital appreciation strategies. This drives more demand and increase in prices of properties in Singapore
These factors and trends all point towards the real estate market recovering at a rapid pace to pre-Covid-19 levels. Coupled with the fact that interest rates are still generally low at this point, it may be wise to act now and buy your property with low mortgage rates before prices surge pasts the pre-Covid-19 levels. The other option is to hope that prices will fall back down once the potential cooling measures have been put in place.
For those who may be uncertain of the prices of properties in Singapore, do contact Home Central at 9799 7955 for any questions regarding the property market.