Housing market in the Year of the Tiger: A roar or a whimper?
The Year of the Ox was a bullish one for the property market, and is expected to end with an estimated 13,118 new homes sold. Even as Covid disrupted lives, it did not put a dent on Singapore property prices, which soared 13.8% from 2Q2020 to 4Q2021. In 4Q2021 alone, overall private home prices rose 5%, with the overall price growth for the full year rounding out at about 10.6%.
The end of 2021 saw the introduction of property cooling measures — the government-prescribed remedy for a frothy property market. It was imposed at close to midnight on Dec 15, casting a pall on the prospects for the Year of the Tiger.
The first new project launched in 2022 ahead of the Lunar New Year was the 107-unit strata landed development, Belgravia Ace. It proved to be a good omen, with 77 out of 85 units released taken up, translating to a sale rate of over 90%. Of the 77 units, 75 were strata semi-detached houses sold at prices from $4.3 million to $4.6 million, and two were terraced houses sold at above $4 million.
“The strong sales at Belgravia Ace gave a boost to market sentiment,” notes Lee Sze Teck, Huttons Asia senior director of research. “It shows that there’s still a desire for bigger homes among
Singaporean buyers.” Many were multi-generational families which were buying with the intention of moving in together, he adds.
Following the property cooling measures, the general assumption was that people would either withhold or scale back on their home purchases, taking into consideration the higher additional buyer’s stamp duty (ABSD) of 5% to 15%, and the tighter total debt servicing ratio (TDSR), which was reduced to 55% from 60%.
Data by Huttons Research proved otherwise. By comparing home sales between Dec 1–15 and Dec 16–26, home buyers appeared to have purchased bigger units, and paid higher average psf as well as absolute prices, according to Lee, who spoke at the Huttons-EdgeProp webinar on Jan 22 (see chart, “Buying trends before and after cooling measures”).
Those who bought bigger homes at higher prices are likely to be “first-time homeowners” who are unaffected by the higher ABSD, and are buying for their own use, Lee points out. “Some may have factored in a future increase in family size, while others are betting on the continuation of the hybrid work and homebased learning trends, hence the need for more space,” he adds.
‘Best window of opportunity’
In order to understand the future, most property consultants look to the past. The last time property cooling measures were introduced was on July 5, 2018. In the aftermath, private housing transaction volume fell for two consecutive quarters, while prices eased by 0.7% over the same time-frame, notes Lee.
Transaction volume and prices recovered and were once again on an upward trajectory from 1Q2019 to 4Q2021. By this reckoning, the impact of the latest property cooling measures should also be about six months. “Once the dust has settled and there’s greater clarity, transaction activity will resume and property prices should recover in subsequent quarters,” Lee adds.
If the past is a guide, Lee believes that “the next six months presents the best window of opportunity” for home buyers (see chart, “Best time to enter the market”).
For Singaporeans and permanent residents (PRs) buying their first property, there is no increase in ABSD. However, foreigners have seen ABSD increase to 30% from 20% previously. The ABSD for Singaporeans and PRs buying their second, third and subsequent properties have been hiked. “The higher ABSD is a form of wealth tax,” notes Lee. “If you’re wealthy enough to buy a second or third property, you can pay a higher ABSD.”
Much has been said about the liquidity in the market. Regardless of its origins, whether it’s from the real economy, metaverse or cryptocurrency, a lot of the wealth generated has been channelled into Singapore’s real estate. “That’s why even after the cooling measures, people are still buying property in Singapore,” says Lee.
To put things in perspective, Lee points to the gap between currency and deposits (cash equivalents) versus mortgage loans, which is at its widest in over two decades (see chart, “Currency and deposits vs mortgage loans”). As at 3Q2021, it stands at 2.12 times, which means every dollar of debt is backed by more than $2 in cash.
In 2021, the Singapore economy grew 7.2%, with GDP growth projected at 3% to 5% for 2022. “Positive economic growth translates to healthy employment levels and an upbeat property market,” Lee adds.
Inflation is a concern around the world including Singapore, with the latest consumer price index (CPI) showing a 2.3% y-o-y increase in 2021. The core inflation in Singapore was 2.1% in December, the highest since July 2014. On Jan 25, the Monetary Authority of Singapore tightened monetary policy in an out-of-cycle move as inflation bites. This year, the CPI all-items inflation is projected to hit 2.5% to 3.5%.
Over the past 20 years, however, property price growth has outpaced inflation. Last year, while inflation was up 2.3%, property prices appreciated 10.6% (see chart, “Property prices vs inflation”). “That’s why real estate is considered by many to be a good hedge against inflation,” says Lee.
Unsold inventory at record low
Depleting unsold inventory is another challenge. Huttons estimates that 2021 is likely to end with a record low of 14,056 unsold units. The last time unsold inventory reached such levels was in 2Q2017, with close to 17,000 unsold units (see chart, “Unsold units vs URA All Property Price Index”).
Supply could be ramped up via the government land sale (GLS) programme. Should the government increase the number of GLS sites for launch this year, due to the time lag, the new supply will only enter the market in 2023, points out Lee. “This is not going to resolve the supply crunch in 2022,” he says.
In the last collective sale wave, from 2H2016 to 1H2018 (prior to the last round of property cooling measures in July 2018), there were about 4,900 new private housing units launched for sale each year, from the successful en bloc sales. GLS sites yielded an average of 3,700 new homes each year, bringing annual supply to 8,600 units.
After the property cooling measures of July 2018, with developers’ ABSD hiked to 25% plus 5% non-remissible, en bloc purchases by developers plunged.
The pick-up in collective sale activity last year proved to be short-lived too, as the latest cooling measures saw developers’ ABSD raised a further 10% to 35% on top of the 5% non-remissible ABSD.
“Developers will have to assess whether the increase in the ABSD risk makes it worthwhile for them to proceed with their purchase,” says Lee. “If the seller’s asking price is unrealistic, developers are likely to give it a miss. This is likely to dampen the collective sale market.”
In addition to lack of supply, construction cost in 2022 is likely to remain elevated, due to Covid-related manpower and material shortages. Having factored in the lack of new supply, and higher construction costs, property prices are likely to head north. However, Lee is forecasting private home prices to increase by about 3% compared to the 10.6% increase in 2021.
Boutique developments
This year, Huttons is expecting 43 new projects to be launched with an estimated supply of 5,509 units. In 1H2022, about 14 new projects are targeted for launch. Of these, eight are boutique, freehold developments of fewer than 40 units.
These include the 34-unit Kovan Jewel by Soon Lian Realty. The project is a redevelopment of the former Kovan Lodge at Kovan Road, near the MRT station and Heartland Mall.
Another is the 32-unit Royal Hallmark at Haig Road in the east. The project is a redevelopment of 10 terraced houses and a bungalow on a 25,054 sq ft, freehold site at the corner of Haig Road and Haig Lane. The developer of Royal Hallmark is said to be a consortium made up companies linked to Nobel Design’s Terence Goon, Lian Huat Group’s Patrick Kho and 2E Capital’s David Ong and Von Lee.
Also in the east is Atlassia in Joo Chiat by niche developer K16 Development. It is a redevelopment of a row of former shophouses. K16 Development’s maiden project is the 34-unit Olloi, which is also in the Joo Chiat area. Atlassia is a five-storey block with 31 apartments and eight commercial units on the first level.
Launching soon is Qingjian Realty’s new project, The Arden, located at Phoenix Road, off Choa Chu Kang Road. The 105-unit, 99-year leasehold development will be built on the site formerly occupied by a row of 36 apartments with commercial shops on the first level, which Qingjian purchased en bloc in 2019 for $42.6 million.
The Arden is the only project in the western region in the pipeline for launch in 1H2022, says Rex Tan, Huttons Asia executive group district director.
ECs and integrated developments
Significant projects this year are those on GLS sites. An upcoming project is North Gaia at
Yishun Avenue 9. It is a 617-unit executive condo by developer Sing Holdings. “ECs are the golden ticket for HDB upgraders and first-timers who are eligible for a $30,000 grant and are able to enjoy deferred payment schemes,” notes Huttons’ Tan.
Since July 2019 with the launch of Piermont Grand, six EC projects have been launched to date. Of a total of 3,473 units from these projects, only 93 remain available (see table, “Unsold executive condo units as at Jan 21”).
North Gaia will be the first EC launch in 2022. The second EC project is expected to be launched in 2H2022. Located at Tengah Garden Walk, this second EC project is a 628-unit development by a joint venture between City Developments Ltd (CDL) and MCL Land.
Besides the EC at Tengah Garden Walk, CDL and MCL Land will also be launching the 99year leasehold, private condo, Piccadilly Grand at Northumberland Road, in the city fringe at District 8. The 407-unit, 99-year leasehold project will have three 23-storey blocks with commercial shops on the first level. The project is located near Farrer Park MRT Station.
A number of significant integrated developments are slated for launch in 2H2022, including the 700-unit development at Jalan Anak Bukit by Far East Organization, MCC Land’s 268-unit project at Tanah Merah Kechil and the 600-unit project at Lentor Central by GuocoLand.
“This year marks the lowest volume of new units launched in five years,” says Tan.