Singapore home prices are soaring, but new launches still sell well. What are the factors at play?

Nov 19, 2022

AS we round off the year 2022, a look at prices that recent condominium launches have been transacting at, especially in recent months, may perplex and intrigue the average prospective homebuyer - how did we get here?

Here's a quick dive into what's beeen going on in Singapore's red-hot property market, and what analysts are saying might happen in the coming years.

Why are condo prices surging?

1. Higher costs and risks for developers:

The still-recovering global supply chain unleashed inflationary pressures on all industries. Pandemic-induced labour and material shortages, logistics gridlocks all added to delays and cost hikes. Construction was no exception, with costs spiking 20 - 30 per cent.

And domestically, real estate agencies merged - with size comes clout, ultimately leading to higher commissions charged to developers.

Yet, with a persistent demand-supply gap, the government sprung new property cooling measures on the private property market, raising further both costs and risks for developers. To hedge against this margin squeeze and risks, developers raised prices.

2. Supply squeeze:

The stock of unsold units in Singapore has been shrinking.

December 2021's cooling measures raised uncertainty for developers, leading to a pullback in landbanking.

The government has also cut the combined supply of land parcels for private housing by 5 per cent for the first half of 2022.

3. Demand drive:

Local support from:

En-bloc sellers, downgraders, parents buying for their children in anticipation of even higher prices.
Investors shifting funds out of volatile equities hurt by surging interest rates - to potential capital gains and rental income from property.
Rising mortgage rates have not deterred many, as buyers may be able to cover such increases amid a healthy job market and salary increments.

Foreign buyers:

Many regional buyers are "impervious to rate hikes". Their holding power helps to sustain prices, especially since a good number buy Singapore property not for a quick flip but also to preserve wealth.

What can be done?

The government has certainly tried to manage the price spiral:

On Sep 30, it raised the rates used to work out the loan quantum for borrowers;
Increased the downpayment for HDB flats from 15 to 20 per cent, and
Imposed a minimum 15-month wait before a private property seller can buy an HDB resale flat.

Property consultants expect these measures to increase:

Rental rates (because of the 15-month wait for private property downgraders who may have to find alternative accommodation);
Demand (and therefore higher prices) for four-room HDB flats (because the 15-month wait-out period does not apply to those aged 55 and above if they're buying a four-room or smaller HDB resale flat);
En-bloc asking prices to cover sellers' costs for a replacement home and rents, and consequently lower success rates for collective sales.

What's the prognosis?

Prices will probably not pull back; but analysts and consultants expect the pace of increase to ease as:

Some prospective buyers get priced out by loan restrictions;
The annual December holiday lull in house-buying approaches;
Upgraders see lower profits from the HDB resale market; and
New home launches dwindle.