Real estate will remain attractive to investors as a safe-haven asset
Record-high prices have emerged in the suburbs, with an increasing number of new condominium units being sold for over S$2,000 per square foot. To date this year, the public housing market has seen a record S$344 million in condominium transactions, with the highest-priced unit changing hands for S$1.42 million.
Entering 2023, “stability” may become the keyword of the year. Buyers will continue to face uncertainties from the current inflationary situation and rapidly changing interest rates, while rising living costs and multiple cooling measures may further curb price increases.
Here are four key factors that may influence the dynamics of the property market in 2023.
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Trend 1: Increased Housing Supply May Stabilize Prices
A large number of residential units will be completed by the end of 2023, including over 20,000 private homes and Executive Condominium (EC) units. This will be the highest number of homes receiving their Temporary Occupation Permit (TOP) in seven years. Many of these units were purchased for owner-occupation after the 2018 cooling measures curbed investor buying, but some will still be resold or rented out.
The tight housing market, especially in the suburbs, has driven a frantic rise in property prices and rents over the past year. With half of the newly completed projects located in the Outside Central Region (OCR), the supply crunch in the mass-market housing sector may be alleviated.
Some large projects in the OCR with over 1,000 units will receive their TOP, such as Treasure at Tampines, Parc Clematis, and The Florence Residences. Other projects obtaining TOP, like Piermont Grand, Sengkang Grand Residences, and OLA, also have more than 500 units.
An estimated 6,600 units will be completed in the Rest of Central Region (RCR), with notable projects including Avenue South Residence, Rivière, and Daintree Residence.
New housing stock in the luxury market remains tepid, with around 2,500 units expected to be completed. Some of these newly completed projects include Leedon Green, Kopar at Newton, Haus on Handy, Boulevard 88, and Van Holland. Due to limited supply and buyers’ preference for new TOP projects, most of the unsold inventory may be fully absorbed quickly.
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Trend 2: New Launches to Meet Pent-Up Demand
In 2023, more than 11,000 new residential units from over 45 projects will be launched, excluding ECs. However, developers may delay launches, causing some units to carry over into 2024. Nevertheless, new supply will be on par with or exceed the 10,496 units launched in 2021 and 10,883 units in 2020. As of October, there were still over 2,000 launched units unsold, some of which may carry over to 2023.
Among the new launches, there will be at least seven large-scale developments with over 500 units, including The Continuum on Thiam Siew Avenue (800 units), The Reserve Residences at Jalan Anak Bukit (740 units), Lentor Hill Residences (598 units), the Dunman Road site project (1,040 units), the Marina View white site project (748 units), the Jalan Tembusu site (640 units), and the Pine Grove Parcel A project (520 units).
In the suburbs, HDB upgraders and young couples can consider two new ECs in Bukit Batok West. Additionally, there are attractive suburban projects such as The Botany at Dairy Farm, Kassia on Flora Drive, the former Park View Mansions and Lakeside Apartments sites on Yuan Ching Road, and the development at 798 and 800 Upper Bukit Timah Road.
The Lentor area is rapidly transforming into a new residential estate with a large shopping mall and new facilities. Buyers looking to own property in this emerging area can consider Lentor Hill Residences and the projects at Lentor Central and Lentor Hills Road Parcel B.
In the luxury sector, some high-profile developments include the redevelopment projects of the former AXA Tower, Maxwell House, Peace Centre, and Peace Mansion, as well as Newport Residences (formerly Fuji Xerox Towers) and the Marina View white site project.
Some of these developments will add vibrancy to Districts 1 and 2, rejuvenating them with new residences and amenities. The government may also unveil the master plan and exciting developments for the Greater Southern Waterfront in 2023, with potential for new office buildings, diverse housing styles, and more nature parks near Keppel, Pasir Panjang, and Harbourfront.
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Trend 3: Uncertainty and High Interest Rates to Drive Prudent Transactions
Leo Kwek, a senior real estate agent at Anjia SG, does not expect a major correction in property prices in 2023. A strong job market sustains pricing power, and sellers may not be inclined to lower prices. However, affordability is paramount for most buyers. Since we may not return to a low-interest-rate era soon, most buyers will likely remain cautious when purchasing property. Therefore, prices for private homes and resale HDB flats are expected to climb at a slower pace of around 5% to 8% in 2023, down from 9% to 11% in 2022.
The gap between buyer and seller price expectations may lead to fewer transactions or longer negotiation times. The slowdown could be mitigated by more completed private homes becoming available for resale in 2023, but the net effect will likely be slower demand. Private home transaction volumes in 2023 may range from 19,000 to 22,500 units, lower than the 21,000 to 22,500 units in 2022 and significantly below the 33,557 units in 2021.
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Trend 4: Rents May Stabilize
Landlords may face some challenges in 2023, with greater resistance to rent hikes. Rising rents could prompt some tenants to move from the private market to more affordable HDB flats, while locals who cannot afford current rents may return to their family homes or opt for co-living spaces.
Additionally, more homes will be completed and available for rent, and a large number of tenants who were renting while waiting for their new homes to be completed will start moving into their new units, exiting the rental market.
However, the influx of new rental properties may not significantly ease rental pressure, as the continuous inflow of expatriates will help fill market vacancies. With tenants signing longer leases of at least two years, the overall rental stock will decrease. Landlords may be reluctant to lower rents as they cope with higher maintenance costs, increased property taxes, inflation, and rising mortgage rates.
The net effect could be that rents will peak in the second half of 2023 and potentially stabilize. While tenants will have little respite, at least rents may not rise as rapidly as they did in 2022. Leo estimates that rental growth may slow from 26%-29% in 2022 to 13%-16% in 2023, with rental demand potentially contracting from 91,000-95,000 units to 85,000-90,000 units during the same period.
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Looking Ahead
The uncertain macroeconomic environment and volatile stock market have reinforced the need for greater investment security. Many investors will diversify their asset allocation portfolios to achieve stable returns, which includes real estate.
Price adjustments and real estate activity have already become sluggish in many countries. Although global headwinds will not be resolved quickly, Singapore’s property market may weather the economic challenges differently. As a safe-haven asset, Singapore property remains highly attractive to both local and foreign investors, and we expect investment interest to remain at a healthy level this year.
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