Overall Outlook

Property prices to remain stable, luxury end could see a dip. We see a slowdown in overall property prices but still remain at a positive +1% to +3% in 2023. Buyer momentum have remained steady in recent months as transactions year to date are anchored by upgraders which are main Singaporeans and permanent residents (“PR”), while foreigner demand will likely remain weak after recent hike in additional buyer stamp duty “ABSD”), which implies that homes in the luxury end of the market will likely see slower transaction volumes. While homebuyers may turn cautious and do a double take before making their purchase decisions, we do not see a significant stresses impact to our listed developers, as most have sold well, clearing up to c.80% of the inventory in their books.

“Cost-push” pressures likely to inflate future launch prices. With tighter requirements to build bigger units (average of 85sqm vs. 70sqm previously) coupled with a spike in construction cost due to rising raw material prices (concrete and steel) and the shortage of manpower, we saw that developers, in general, have moderated their bids modestly, given the need to underwrite higher construction cost estimates to achieve breakeven. With land prices averaging c.S$900psf to S$1,000 psf , we continue to see selling prices sticky in the range at close to S$2,000 psf onwards for homes in the Outside Central Region (“OCR”) with higher prices expected for homes in the Rest of Central Region (“RCR”) and Core Central Region (“CCR”).

Higher mortgage burden a dampener but lack of supply and strong rental market are supportive indicators. We believe that the impact of the TDSR will place a heavier mortgage burden on households while the recent tighter property measures to limit investors and foreigner participation in the property market. While looking at Singapore banks via-à-vis property (see report dated 31 Oct 2022: Singapore Banks & Property: Are the property market and banks unscathed from higher rates? ), our analysis found that households are generally well capitalised, with average loan-to-value coming in at 35%-38%. Additionally, with the banks’ mortgage book loan-to-values (LTVs) averaging 50%-60%, these factors eliminate the chance of a systemic risk impacting the property market. In addition, unsold supply reamins at a multi-year low of c.16,000 units, implying market absorption rates below 2.0 years. As such, we do not see any significant downward pressure on property values. In fact, the currently strong employment market and reopening of borders remain a boost for the rental market in the immediate term.

Prices heading to a new “normal” With property as an asset class that is close to everyone’s hearts in Singapore, we have always felt that the government has to be proactive rather than reactive in its calibration of policies to bring stability to the property market. We sense a little froth in the property market, judging from the sales seen in recent launches, low unsold inventory in the market, and the low interest rate environment fuelling a rise in property prices. Faced with rising construction costs, developers will likely be keen to be “pushing the envelope” in terms of pricing through 2023. We thus see a risk that the Property Price Index (PPI) will outpace a rise in Gross Domestic Product (GDP) growth, implying a decline in overall affordability for households. We previously postulated, back in 2018, that Singapore property prices may post strong growth in prices, rising at a 3% CAGR to S$2,900psf over 12 years to 2030. That is just seven years away now. Since then, property prices have run, but household incomes have to play catch up.

 
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Derek TAN Weixiang
[email protected]
+65 668 23716

Dale LAI
[email protected]
+65 668 23711

Rachel TAN Lih Rui
[email protected]
+65 668 23713

Geraldine WONG
[email protected]
+65 668 23719