What is happening in Singapore property markets?
In property markets, and Singapore is no exception, factors such as demographics, interest rates, and tax, all affect real estate prices.
This is because they crucially impact the demand/supply curve. However, like most property markets, Singapore has certain idiosyncrasies which also need to be taken into account.
One such idiosyncrasy is that the supply of residential property in Singapore is dependent on the awarding of land by the government to builders. This is similar to Hong Kong, although it holds good primarily for public housing supplied by the government Housing Development Board (HDB).
First of all, Singapore real estate is categorized into four different types:
- Residential – comprised of privately owned condominiums and public housing. Unique to Singapore, 80% of the residential population resides in housing supplied by the HDB
- Retail – comprised of retail properties for shops, restaurants and other establishments
- Industrial – comprised of properties identified for industrial use
- Office – comprised of office space
Looking back over the last decade, Singapore property prices really started to rise when the government introduced measures to boost the market in 2007. Some of the key government policy changes were as follows:
- There was a substantial reduction in the required cash down payment towards purchasing HDB residential properties. The down payment requirements were cut from 10% to 5%.
- The foreign ownership rules for the purchase of apartments were relaxed.
- There was an increase in the permitted LTV ratio (Loan to Value ratio) from 80% to 90%.
These measures accounted for a jump of nearly 30% in the overall property index from 2006 to 2007.
However, in 2008, the global financial crisis pushed prices down again. Singapore is a regional financial center and layoffs by global financial institutions have a major impact. Transaction volumes fell sharply while vacancy rates inched upward.
Singapore’s residential property price index fell by 4.7% (-9.6% in real terms) in 2008. Post-2009, the rise in residential property in the last 5 years is a mere 0.08%, with negative growth since 2014.
Singapore’s property investment sales suffered a major contraction in Q3 of 2015, with demand for public housing particularly weak. The total value of sales plunged 39% (QoQ) to its lowest level since Q2 of 2009.
Office rents, which were generally on the rise from 2010, also started falling in Q3 of last year. They are now around the same level as early 2014. Retail rents peaked most recently in Q4 2014, and have been falling for four straight quarters. They are now at their lowest level in at least five years.
Much of the recent drop in residential property prices can be attributed to the fact that the government awarded land parcels at lower than expected prices, and at locations which were not highly attractive. Moreover, government price cooling measures, introduced in 2014, have also pushed down property prices.
The limited supply of quality government land is expected to continue for a while. Moreover, land sales in the private sector are set to remain muted. So sentiment in the Singapore public property market seems unlikely to recover soon.
The recovery of buyer interest in luxury apartments and landed homes could gain some momentum, however, due to demand by funds and high-net-worth investors.
In the commercial sector space, the presence of institutional players, private equity investors, offshore buyers, wealthy individuals and family offices who are actively looking for office investment assets are expected to provide some support to the investment sales of commercial properties.