Of home prices and affordability

Jan 11, 2023

SINGAPORE’S private home prices finally started to flatten in the fourth quarter of 2022, after five years of rising continuously. The slowdown was not unexpected, rippling in the wake of various waves of government intervention in the market, and caution over rising mortgage rates.

Prices have shot up the most in the Outside Central Region (OCR), in suburban locations where new launches last year set fresh benchmarks and average launch prices crossed S$2,000 psf. And in Q4, prices in the OCR region in fact fell, by 2.6 per cent, after jumping 7.5 per cent in Q3.

That the curve is tapering off should bring some relief to househunters who have felt sidelined by price lists showing seven-figure sums for a “mass market” property of under 1,000 sq ft in the suburbs.

Agents speak of a “sweet spot” between S$1.5 million and S$2 million, a price range for new condo units that “sells well”, and often point to a demographic that is well funded with available pools of liquidity to tap on. But caution among buyers is growing with rising interest rates, inflation and an uncertain macroeconomic outlook. Many - rightly - do not want to commit to a large amount of long-term debt that will eat into their savings and future retirement adequacy.

Concerns over affordability loom large, even in the public housing market where new flat prices (on an average psf basis) have risen 22 per cent in the last 10 years. HDB resale prices, meanwhile, ran up 30 per cent in the last five years.

Going by measuring median income against price, HDB homes are largely within the means of most, my colleague Leslie Yee writes in his latest column The Level Ground, but there are many valid concerns over affordability.

Overall, private residential prices showed an 8.4 per cent rise for the year, down slightly from the 10.6 per cent growth in 2021. For 2022, transaction sales volume was down about 36 per cent over the year before. Still, prices are 22.5 per cent higher than in 2019, and 35.7 per cent more than in 2017.

In the same span of time, the HDB resale market mirrored these gains. Resale flat prices were up 10.3 per cent in 2022, and are 30.6 per cent higher than in 2019 and 29.5 per cent higher than 2017.

A pullback showed in Q4 of 2022 after months of prices still climbing but on low sales volume. Scenes of thousands turning up at showflats and news of sell-out launches mask the fact that this was not quite a year of business as usual. 2022 was exceptional because of a marked drop in supply rather than a discernable fall in demand.

There’s plenty more where that came from, however. In its state land sales programme for the first half of 2023, the government is bumping up supply of both residential and office sites.

The number of housing units to come onstream from the H1 2023 schedule is the highest since 2014. The intention is to “meet owner-occupier and rental demand in the near term”, says the government’s statement.

This signalling comes on top of other levers the government has already activated across markets, from additional buyer’s stamp duties (ABSD) to higher property taxes to tighter lending limits. A new rule, requiring HDB “downgraders” to wait 15 months after they sell their private property before they are allowed to buy an HDB resale flat, was put in place as “a temporary measure which will be reviewed in future depending on overall market conditions and housing demand”. When? Well, that’s the million-dollar HDB flat question.

Developers have been conspicuously reticent in the land sales market, which speaks to their view of the near-term future. En bloc offers of condo sites large and small have gone unsold over the last several months, including plots of land in prime locations. Tenders closed with no takers, including those with supposedly palatable prices, or received lower offers that residents have yet to agree to.

Meanwhile, residential rentals have gone through the roof despite leasing transactions falling towards the end of the year and coming in lower year on year. Incidents of landlords raising the rent by 50 to 100 per cent are not uncommon and may continue as investors seek to cover higher financing costs and property taxes.

In the prime location of District 9, the Orchard and River Valley area, median rentals for a 3-bedroom condo hit S$15,000 a month in November. Outside the core central region, rents also jumped.

Significantly, while home sales dived in the last three months of 2022 when there were no new launches and would-be buyers went on vacations, transactions in prime, top-end projects continued to stream in. In Q4, the three best-selling projects were Perfect Ten, which moved 54 units; Rivière selling 38 units; and Leedon Green with 31 units transacted.

The next few months will be telling. Between five and 10 new projects, including Sceneca Residence, TMW Maxwell, 8 Shenton Way, Terra Hill, Lentor Hills Residences, The Botany @ Dairy Farm, and The Reserve Residences are expected to come to market in the first quarter. Conservatively, at least 5,000 units will come up for sale in the first half of the year. Those in the market for a new home will have a spread of projects across different locations to browse from.

But agents are not holding their breath for developers to offer prices lower than current benchmarks. Perhaps then, we’ll see a truer picture of demand.