Singapore’s property market is set to close out 2021 with its best sales performance in recent years, with private home prices rising for the sixth consecutive quarter to reach an all-time high in the third quarter of this year.
In 2021, private home prices in Singapore accelerated by about 9%, surpassing the levels of the past two years.
Private residential resale prices have risen for 15 consecutive months, while non-landed private property resale prices have increased for 12 consecutive months, hitting an eight-year high.
Just as we step into 2022 and anticipate how much further Singapore property prices will continue to rise, the government has decided to introduce a new round of cooling measures.
Many buyers who are preparing to purchase or planning to buy in the coming months will surely want to know how this news will affect Singapore’s property market.
In this article, I will analyze the entire market for you;
1. Why is the Singapore property market so resilient?
- Market Liquidity
- Insufficient Land Supply
2. MAS Vigilance – Have Singapore Property Prices Deviated from Economic Fundamentals?
- Household Balance Sheets
- Affordability
Table of Contents
Why is the Singapore property market so resilient?
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Market Liquidity
Despite the coronavirus pandemic, one of the main reasons the property market has risen so quickly is due to the massive liquidity injected into the market by the US Federal Reserve (FED).
Fearing the pandemic’s impact on the market, the US government released a large amount of money by purchasing bonds on the open market. It increased the money supply in the economy by exchanging bonds for cash with the public.
As you can see from the chart above, in the first 243 years of US history, up to 2019, a total of $4 trillion in money supply was issued.
But in just one year under Donald Trump’s leadership in 2020, the Fed injected $14 trillion of liquidity into the market to counter the effects of the coronavirus.
The European, Japanese, and Chinese governments followed suit, increasing their money supplies.
With so much extra money in the world, but a limited number of assets, prices have risen across the board due to limited supply and increased demand.
The Singapore government foresaw this back in 2009 with the three rounds of quantitative easing (QE1, QE2, QE3) introduced by then-US President Barack Obama.
The Singapore government does not want asset inflation in our housing market, as residential property is a crucial pillar of our society.
The government wants a stable property market and to maintain the quality of life for the people of Singapore.
So, starting from 2009, the government has controlled Singapore property prices by introducing a series of cooling measures, including the most recent one, for a total of nine cooling measures.
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Insufficient Land Supply
From 2017 to July 2018, Singapore’s property market experienced a collective sale (Enbloc) boom.
During this period, Singapore property prices rose by nearly 10%, prompting the government to introduce the eighth round of cooling measures on July 5, 2018, to curb the rapid growth.
In addition, the Singapore government controlled the land supply to avoid a situation of oversupply.
On one hand, the government was concerned about the economic damage caused by the pandemic and the massive liquidity in the money market; on the other hand, it feared an oversupply that could lead to a drop in property prices.
The collective sale boom is making a comeback this year because the government allowed the land supply to decrease significantly, forcing developers to replenish their land banks through collective sales.
This has led to the current supply shortage, which is one of the reasons why Singapore property prices have been rising.
The image above shows that from the first quarter of 2019, the total unsold inventory and unsold completed units from developers have been continuously decreasing. From Q1 2019 to Q3 2021, the inventory has decreased by 54.6%, from 37,799 unsold units down to 17,159 units.
If you look at the number of collective sales from 2017 to 2018, you might feel that the supply of new homes is plentiful, but these are spread out over several years.
As of Q3 2021, 86% of the supply has already been sold. Next year, 81% to 90% may be sold, and in 2023, 72% to 80%.
In 2020, sales of new private homes amounted to 9,982 units, but based on the current supply balance from Q3 2021 to 2025 (a period of 4.25 years), there will only be a supply of 4,150 units per year.
Therefore, we are currently facing a shortage of new housing supply.
Looking at the collective sale transaction value chart, after the cooling measures in July 2018, there was no activity in the collective sale market.
But in the fourth quarter of this year, 2021, deals worth S$3.26 billion were concluded. If the Singapore government had not introduced any new cooling measures, I predict that the situation from 2017-2018 would have repeated itself.
Therefore, I believe one of the purposes of the new round of cooling measures is also to slow down the pace of the collective sale market.
You might be wondering, if the government is concerned about a housing supply shortage, why not provide more housing supply?
Let me explain further…
If we add the approximately 2,800 units announced by the government on December 17, 2021, to the approximately 3,600 collective sale units from Q4 2021, this will provide about 6,400 new residential units in the first half of 2022.
Over the past 10 years, the average annual demand for private homes has been around 10,800 units.
The Singapore government is waiting to observe the development of collective sales in the coming months.
If developers launch another 5,000 units through collective sales, the government will slow down the Government Land Sales (GLS) programme for the second half of 2022.
Conversely, if there are not enough units from collective sales, the government will release more new units from the GLS programme.
The Singapore government is closely monitoring all developments.
The purpose of the cooling measures is not to crash the Singapore property market or cause prices to fall, but to slow the rate of property price increases to be roughly in line with income growth.
The government remains vigilant about the risk of a sustained increase in the gap between prices and income.
This will help promote a stable and sustainable Singapore property market.
Monetary Authority of Singapore (MAS) Vigilance – Have Singapore Property Prices Deviated from Economic Fundamentals?
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Household Balance Sheets
In its annual Financial Stability Review released on December 6, 2021, the MAS cautioned that households should properly consider their ability to service long-term mortgage loans when taking on large new debts, especially as interest rates are expected to rise gradually.
MAS noted that in the third quarter of 2021, the ratio of household debt to Gross Domestic Product (GDP) rose to 70%, up from 67.1% a year ago.
But what MAS did not report is that the fundamentals of Singaporean households are getting stronger, and our asset-to-liability ratio has actually decreased.
The red line represents the growth rate of liabilities, and the yellow line represents the growth rate of assets.
From the chart, you can see that our asset growth is far higher than our liability growth.
In Q4 2010, the asset-to-liability ratio was 15.7%, but in Q3 2021, it had fallen to 13.2%. This proves that the fundamentals of Singaporean households are actually becoming stronger.
Singapore property prices have been rising because people are getting wealthier, accumulating more assets, and owing less debt.
This means the current Singapore property market is sustainable, and those who can afford to buy will continue to do so.
Singapore property prices will not fall based on the new cooling measures as some people speculate.
Let’s look at another ratio: Singapore households’ Central Provident Fund (CPF), cash, to liabilities.
Back in Q4 2010, this ratio was 55.3%, and in Q3 2021, it dropped to 36.1%. It’s worth noting that I haven’t included other assets like stocks and other investments.
As you can see from the yellow line, the ratio is decreasing, which again proves that Singapore’s fundamentals are actually getting better.
People are buying because they have more cash and CPF funds.
Now that we have established the fact that many households are wealthy, are we holding too much in property assets? This could be dangerous if the Singapore property market were to crash one day!
This is the percentage of residential property in the net worth of Singaporean households.
In Q4 2011, this ratio was 60%, but by Q3 2021, it had dropped to 48%. Residential property constitutes a decreasing proportion of our assets.
As shown by the yellow line, the net worth of Singaporean households has risen to nearly S$2.4 trillion. This once again indicates that our fundamentals are very strong.
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Affordability
Let’s look at more data on affordability: Singapore’s price-to-income ratio.
The price-to-income ratio is the ratio of house prices to annual household gross income. Simply put, it compares the total price of a house to the annual income of a household, used to measure whether house prices are at a reasonable level that can be supported by residents’ income.
The lower the ratio, the stronger the affordability.
Compared to ratios of 8 to 20 in other cities, Singapore’s private property price-to-income ratio is only 6.3.
This is also why foreigners still come here to buy property despite the higher Additional Buyer’s Stamp Duty, because our property prices are more affordable.
In the UBS Global Real Estate Bubble Index 2021 report, Singapore’s index score is 0.52, which is in the fair-valued range.
According to Knight Frank’s Wealth Report, luxury property prices in Singapore are more affordable compared to major global cities like Monaco, Hong Kong, New York, London, and Geneva.
In addition to more affordable property prices, Singapore offers a safe haven for investors’ assets and a safe living environment for their families.
2022 Market Outlook
Based on my experience, sales volume will slow down in the next one to two quarters as buyers wait and observe the market’s reaction to the new cooling measures.
But after that, Singapore property prices and sales volume will resume their upward trend. The market will adjust to the new normal in 2022, supported by solid economic and household income fundamentals. With various measures already in place, there is no speculative bubble in the Singapore property market.
For those interested in my previous analysis reports, you can also take a look at this article on Responding to the Impact of the Coronavirus and the Resilience of the Singapore Property Market. After the pandemic broke out last year, when most buyers thought Singapore property prices would plummet, I wrote this in-depth piece on Singapore’s property market based on data and professional experience. It provides my personal opinions and views, explaining why I believe Singapore property prices will not fall sharply and will continue to grow steadily in the long term.
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