Don’t Wait: 2023 Singapore Property Prices Unlikely to Fall

Many had predicted that cooling measures would be introduced mid-year, but the question was when and in what form they would appear.

Nine months after introducing a series of property cooling measures in December 2021, the Singapore government again rolled out new restrictions in September 2022 to intervene in the property market, aiming to ensure that homebuyers are not overstretched by soaring interest rates.

Indeed, the continuous rise in interest rates in 2022 has been a hot topic. We can’t help but ask: will higher financing costs kill property demand and lead to a price decline?

Anjiasg posed this pressing question to Leo Kwek. This article will help buyers understand what measures can be taken to navigate the 2023 property market.

Leo Kwek, Founder of Anjiasg.

For you, what was the biggest highlight of the Singapore property market in 2022, and what were the reasons?

LEO: The pace of interest rate hikes was particularly prominent in 2022. To curb rampant inflation, central banks worldwide, led by the US Federal Reserve, aggressively raised interest rates, which had a knock-on effect on rates in Singapore. The three-month Singapore Overnight Rate Average (SORA), used for pricing home loans, soared from 0.195% per annum on January 4 to 3.095% per annum on December 13. As rates continued to climb, we also saw banks raising their fixed home loan rates several times.

For many homebuyers and homeowners, this can be daunting. Some of them, especially the younger ones, may not have experienced such high interest rates before. Since the global financial crisis, the cost of home loans has been generally low. Suddenly, they are seeing fixed home loan rates of over 4%, whereas for years, they had been enjoying low rates of under 2%. So what happens next? People are worried, they are uncomfortable, and they are unsure if they should buy their first property, or upgrade, or even invest in a second property.

The rising interest rate environment also prompted the government to implement new cooling measures at the end of September 2022, aimed at encouraging homebuyers to be more prudent in their property purchases.

I think what we are seeing now is a normalisation of interest rates after more than a decade of ultra-low rates. I believe the Fed has done most of its massive, aggressive rate hikes this year. It is possible that the Fed may stop its sharp rate hikes in 2023, which would translate to a slower increase in home loan rates, and rates will probably stabilise in the second half of 2023.

Some people may postpone their purchase due to high interest rates, deciding to wait for a better time and speculating that prices might perhaps come down (which I will address in the next question). What I would say is that it is impossible to time the market perfectly. If you see a property that you like and it fits your budget and needs, you can still buy, upgrade, or invest even if interest rates are high. The key is proper financial analysis, which we can assist with. If you are looking for a property, I encourage you to talk to us. We use proprietary digital tools to help you make informed decisions, from assessing your financial strength to the property’s capital appreciation potential, and whether the property is a good fit for your circumstances.

Some believe that the Singapore property market might slow down in 2023 with prices potentially falling due to recession or high interest rates. What are your thoughts on this?

LEO: In a nutshell – I do not expect Singapore property prices to correct downwards in 2023. Why? There are several factors that will support prices, which I will point out in turn.

In the new homes market, we all know that selling price is a function of land cost and construction cost. Construction cost is estimated to have risen by about 30% in recent years and land prices from the Government Land Sales (GLS) programme have held firm, which leaves developers with little room to cut prices. In addition, there is a limited stock of unsold new homes on the market – just over 15,000 units (excluding Executive Condominiums ECs) with planning approvals as of Q3 2022. If we take a conservative annual take-up of 7,500 units, this stock can be sold out in 2 years. Based on our observations, the supply imbalance is particularly acute in the Outside Central Region (OCR). With tight supply and still-healthy demand, developers will not see a need to cut prices.

In the resale market, the feedback is that there is a limited number of homes available for resale, and an undersupply. There are a few reasons why owners are holding back on selling: 1) The rental market is booming, and they would rather rent out their properties to get recurring income; 2) High replacement cost is deterring some owners from selling and buying another property; 3) Government policy-related factors. The Additional Buyer’s Stamp Duty (ABSD) for second and subsequent home purchases has disincentivised those with multiple properties from selling their investment properties because they will have to pay a hefty ABSD if they want to buy another property in the future. The newly introduced 15-month wait-out period as part of the September cooling measures may also cause some private homeowners to defer their plans to sell and downgrade to an HDB resale flat. These factors will weigh on resale supply. What we have now is a situation of low supply and steady demand. Let’s go back to the question – will prices come down?

While global headwinds and a recession may affect buying sentiment, we think genuine buyers are able to support housing demand – among them new family-starters, first-time buyers, new citizens, HDB upgraders, and foreign investors. The job market remains tight, and the purchasing power of many Singaporean households remains strong. Furthermore, the Singapore property market is stable with low levels of speculative activities. So, my take is this: prices will not come down, but the pace of growth may slow in 2023.

What are the potential investment opportunities/highlights to watch for in 2023?

LEO: It largely depends on the individual’s needs and budget, but in general, I would say those with a tighter housing budget may want to look at the resale market. Resale private home prices have climbed at a slower pace compared to new sale prices over the past year. Based on caveats lodged, the average transacted price of new non-landed homes rose by 23% from 2021 to Q4 2022 (as at 4 Dec), while the average transacted price of resale properties only increased by 8% during the same period (see Chart 1).

This has therefore opened up a huge gap between new and resale private home transacted prices. As you can see from Chart 1, the average price gap between non-landed resale private homes and new private homes came in at a staggering $1,074 psf in Q4. In Q4 2022, the average transacted price for new private homes was $2,655 psf, while resale private homes averaged $1,581 psf. This latest price gap is a substantial increase from the $689 psf in 2021. We project that resale prices could continue to climb gradually in 2023, but not to the extent of overtaking new sale prices.

Of course, there are factors to consider when buying a resale property. One thing to note is that resale prices tend to rise more slowly, and could even stagnate after some time. This is because the valuation of a resale property is often pegged to recent transactions in the area, and it is unlikely that a resale unit can be sold for much higher than the market rate. In any case, an overpriced resale unit will be hard to sell as buyers will turn to other more reasonably-priced units within the same project or in the vicinity. For those who are buying an older 99-year leasehold property, they would also need to consider the maintenance costs and lease decay issues.

Figure 1: Average Transacted Price (PSF) of Non-Landed Private Homes (New Sale vs. Resale)

In 2023, we expect more new condo projects to be launched, which will provide more choices for homebuyers who may not have to worry about limited options due to dwindling unsold stock. Although we expect developers to be sensitive with their pricing strategy in view of the recent cooling measures and global headwinds, we do think prices will remain on a slight uptrend in 2023.

Price growth in the Rest of Central Region (RCR) and Core Central Region (CCR) could potentially outperform the Outside Central Region (OCR). There are a few projects that could support price growth in the RCR where the land prices were above $1,300 psf ppr – such as Dunman Road, Jalan Tembusu, and Pine Grove. Meanwhile, prices in the CCR will be supported by new launches from redevelopment sites, including the former Maxwell House, AXA Tower, Fuji Xerox Towers, and the Marina View GLS site.

Despite the firm prices, new launches will still be sought after by buyers. There are many reasons why some buyers are willing to pay a premium for new launches. For one, buyers will be getting a brand-new property with modern facilities and a fresh lease, in the case of a 99-year leasehold project. Another reason is the potential for capital growth from the first-mover advantage. Generally, developers will price their units most attractively at the start of the launch, and once a certain sales level is achieved, developers may start to raise prices. So, those who bought on the launch weekend, could potentially be sitting on paper gains when the project is still being sold.

Regardless of one’s budget, there will be buying opportunities this year, be it in the private residential market or the HDB resale market. We as professional real estate agents will be able to zoom in on the options for buyers and provide detailed analysis. Should you wish to learn more about property investment and financial planning, please feel free to reach out to us.

What do you think are the main risks in the residential real estate sector that buyers and investors should be aware of in 2023?

LEO: The challenges this year are issues that we have heard about – the possibility of a global recession, geopolitical tensions and conflicts, high inflation etc. The implicit risks from all of these include job instability or unemployment, higher cost of living, and a weaker market. For homebuyers and owners, this ultimately boils down to financial risk management. Do you have the financial capacity to tide through if a recession were to happen?

Buying a property is a long-term commitment, with the home loan tenure stretching up to 20 years or more. So, it is vital for buyers to go in with their eyes wide open and be as comprehensive as possible in their financial assessment and life goals. What can you comfortably afford right now? What are your expenses like? What are the future plans? – Do you want to have more children? Do you plan to take time off to further your studies? Do you intend to buy a car at some point? Or do you want to set up your own business? How much should you set aside as standby funds to deal with unforeseen events (e.g., a sharp hike in interest rates, retrenchment, or family emergencies)? Do you intend to upgrade to another property years down the road? What are the resale prospects of the specific property that you are hoping to buy?

I know it is a long list of questions, and there are probably more considerations that I have not mentioned. The bottom line is, the more detailed you are at the planning stage, the more peace of mind you will have when you buy your property because you know you have the financial capacity to weather the storm when a market down cycle does happen. We are experienced and well-versed in helping our clients assess their financial standing and navigate their property investment journey. Do get in touch with us for a consultation.

Disclaimer:

While every reasonable care has been taken to ensure the accuracy of the information printed or presented here, we are not responsible for any loss or inconvenience caused by any error or omission. The ideas, suggestions, general principles, examples and other information presented here are for reference and educational purposes only.

The information contained herein is not intended to provide investment, regulatory or legal advice or recommendations for the purchase, sale or lease of any property or any form of property investment. Anjiasg shall not be liable for any loss or expense whatsoever, relating to any decisions made by the reader.

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