“When America sneezes, the world catches a cold.” The US Federal Reserve raised interest rates by a sharp 75 basis points in June 2022 and may do so again in July 2022 to curb inflation, potentially pushing the US economy into a recession.
Will Singapore’s Economy Follow Suit? How Does a Recession Affect Singapore’s Property Market?
Singapore’s last economic contraction was in 2020, with Gross Domestic Product (GDP) falling for two consecutive quarters. Property prices were surprisingly resilient, dipping 1.0% for one quarter before climbing again ahead of economic growth. The recovery of Singapore’s property market led the overall economy by one quarter.
Table 1: Comparison of Gross Domestic Product (GDP) and Property Prices (Q4 2019 to Q3 2020)
| Period | GDP Growth (based on 2015 SGD values) | URA Property Price Index |
| Q4 2019 | +0.2% | 0.5% |
| Q1 2020 | -0.1% | -1.0% |
| Q2 2020 | -12.6% | 0.3% |
| Q3 2020 | 9.2% | 0.8% |
Source: Singstat, URA
Does the Singapore Property Market Lead an Economic Downturn, or Does the Economy Lead the Property Market’s Decline?
Based on available data going back to 1975, we can compare the changes in GDP and property prices to see if there is any correlation between the two.
Figure 1 shows that the Singapore property market declined before the economic contraction. Property market prices fell by 0.8% in Q1 1998, followed by an economic contraction in Q2 1998. Before the 1997 Asian Financial Crisis, the property market took a dive in Q3 1996 due to stringent government cooling measures to curb speculation.
During the dot-com bubble burst in 2001, the property market also first turned in Q3 2000. It was only during the Global Financial Crisis and the COVID-19 recession that property prices fell in tandem.
Figure 1: Comparison of Gross Domestic Product (GDP) and Property Prices (1975 to Q1 2022)
During periods of declining property prices, economic growth also slows down accordingly.
On the other hand, the recovery of the property market occurs concurrently with economic recovery. Most of the time, the property market’s recovery is sharp and swift.
The property market appears to be a better indicator of economic health. This runs contrary to the common belief that an economic contraction will lead to a downturn in the property market.
There may be other reasons why the property market declines before a recession. In the past, property speculation was common, especially in the mid-90s, where buyers could easily flip properties. Some speculators would sell at a lower price to limit their losses.
The real estate industry relies on easily accessible, low-cost financing. During the Asian Financial Crisis, some banks restricted loans to developers and raised interest rates. This, in turn, pressured highly leveraged developers to lower prices to drive sales.
The credit crunch led to fewer new property launches, which in turn affected the construction industry from the late 1990s to the early 2000s. This had a domino effect on employment and other sectors of the economy, contributing to the economic contraction at the time.
If the Singapore Property Market is a Leading Indicator, How Can We Use It to Make Better Buying Decisions?
Undoubtedly, rising interest rates are a concern. However, compared to the past, developers are more cautious and less leveraged. Furthermore, the likelihood of them selling at a discount to meet the five-year deadline for Additional Buyer’s Stamp Duty (ABSD) remission is low.
As of Q1 2022, the unsold inventory in the market stood at 14,362 units, a very low level. This is 62% lower than the peak of unsold units in Q1 2019.
The Monetary Authority of Singapore (MAS) has ensured that speculation is minimised through the Seller’s Stamp Duty (SSD). The speculation rate in Q1 2022 was as low as 2.6%, compared to 31.1% in Q2 1995. With the Total Debt Servicing Ratio (TDSR) capped at 55%, this prevents buyers from over-leveraging.
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Will Singapore Property Prices Decline in the Second Half of 2022?
This is highly unlikely. The two major projects launched in Q2 2022, Piccadilly Grand and LIV@MB, had median selling prices of S$2,175 and S$2,405 per square foot, respectively.
The resale condo price index from property portals shows that prices increased by 1.1% in April and May. Housing demand remained strong in June.
Singapore property prices are expected to maintain their growth momentum in 2022. Rising construction costs will lead to higher selling prices. Low unemployment, sustained income growth, and a growing HDB resale market mean that housing demand will remain stable.
If prices do fall, past experience shows that the recovery will be sharp and swift!
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