A snapshot of Singapore’s property market in 2H2020
Singapore is a month into Phase Two reopening after the “circuit breaker” period. With general elections over on July 10 where Singapore’s ruling party still gained the majority share of votes, real estate consultants and listed property developer GuocoLand weighed in on what the property market could look like in 2H2020 at Virtual Forum on Real Estate Investment on July 11.
Alan Cheong, head of research and consultancy at Savills Singapore, says the residential market has been resilient despite travel restrictions and external challenges. In 1Q2020, residential transactions still increased 16.9% y-o-y.
From April to June, new home sales increased from just below 280 units to over 980 units, notes Cheong. For Phase Two reopening, transaction volume is expected to continue rising. “Buying numbers are likely to settle at pre-Covid levels,” says Cheong. And with buying momentum in new and resale markets picking up, he expects to see prices increase only after Phase Three of reopening.
Cheong reckons it does not matter whether one buys a property in the Core Central Region (CCR), Rest of Central Region (RCR) or Outside Central Region (OCR), as the different market segments are highly correlated. “Beyond the URA Master Plan, you have to look at the macroeconomic trends,” he says.
Low interest rates, expected gains prompt switch to residential
The residential market’s resilience could be attributed to the low interest rates, says Cheong, which have prompted some of those sitting on the sidelines to commit to a purchase. The low interest rates will also help lower interest costs for homeowners and businesses, reducing the risks of foreclosure, he adds.
Cheong attributes the health of the residential market to past macroprudential policies too, such as the Total Debt Servicing Ratio (TDSR) loan framework introduced at the end of June 2013. “Prior to TDSR, one could take out a loan on the increased equity value of your home to speculate in stocks,” he says. “When the stock market went down, you ended up having to sell your home. But TDSR has minimised the likelihood of that happening, so when stock prices came down significantly, real estate prices remained relatively resilient.”
There is also a socially-ingrained expectation that residential properties in Singapore will increase in value over time. “Since 1975 until now, we have seen extraordinary gains in the residential market,” observes Cheong. “There may have been short-term bounces in between, but from generation to generation, values have increased over time. That’s why people were still entering the residential market despite the circuit breaker. The equity market does not have the same expectation.”
Singapore’s property market recovery could even mirror that of China, where residential sales across various cities have bounced back to pre- Covid levels and home prices have moved up steadily, especially in China’s Tier 2 cities, reckons Cheong.
He therefore believes that the residential sector will remain more resilient compared to other sectors such as office, commercial or industrial. “People still need a roof over their heads,” he says. He foresees people switching part of their investment portfolio from equities, bonds, REITs and other financial instruments and putting it into residential property.
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