As 2022 draws to a close, observing the transaction prices of recently launched condominiums, especially in recent months, may leave the average potential homebuyer feeling perplexed and curious about the reasons why.
Here is a brief overview of the current red-hot property market in Singapore and what analysts are forecasting for the coming years.
Table of Contents
Why Are Condominium Prices Skyrocketing?
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Developers are bearing higher costs and risks:
The still-recovering global supply chain has brought inflationary pressures across all industries. Pandemic-induced labor and material shortages, along with logistical gridlocks, have exacerbated project delays and cost increases. The construction sector is no exception, with costs rising by as much as 20% – 30%.
However, due to the persistent supply-demand gap, the government introduced a new round of property cooling measures for the private real estate market, further increasing costs and risks for developers. To hedge against this profit squeeze and risk, developers have raised prices.
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Supply crunch:
Singapore’s unsold inventory has been shrinking.
The December 2021 property cooling measures created uncertainty for developers, leading to a reduction in land banking.
The government also cut the total supply of private residential plots by 5% in the first half of 2022.
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Demand-driven:
Local demand comes from:
- Sellers of en-bloc properties, downgraders, and parents buying for their children, who are expected to drive prices up;
- Investors shifting funds from the volatile stock market, which has been hit by soaring interest rates, to the real estate market for potential capital gains and rental income;
- Many are not deterred by rising mortgage rates, as buyers may be able to afford the increase amid a healthy job market and wage growth.
Foreign buyers:
- Buyers from many regions are “impervious to interest rate hikes,” and their holding power helps sustain prices, especially since many purchase Singapore property not for a quick flip, but for wealth preservation.
What Can Be Done About Soaring Private Home Prices?
The government has certainly tried to control the price spiral:
- On September 30, the government raised the interest rate floor used to calculate loan affordability for borrowers;
- Increased the downpayment for HDB loans from 15% to 20%;
- Private property owners will have to wait at least 15 months before they can buy a resale HDB flat.
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AnjiaSG’s senior local real estate agent, Leo Kwek, predicts these measures will increase:
- Rents (as the 15-month wait-out period may lead private property downgraders to seek alternative housing);
- Demand and prices for 4-room HDB flats (as those aged 55 and above are exempt from the wait-out period if they move from a private property to a 4-room or smaller resale HDB flat);
- En-bloc asking prices (as sellers will need the sale proceeds to cover the cost of replacement homes and rent, which will further reduce the success rate of en-bloc sales).
What Is the Outlook Moving Forward?
Prices may not fall, but Leo expects the growth rate to slow down because:
- Some potential buyers are priced out due to loan restrictions;
- The annual December holiday lull is approaching;
- Upgraders see lower profits from the HDB resale market;
- There are fewer new project launches.
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