Singapore’s real estate market has been one of the hottest topics in many newspapers in 2018. I bet it will continue like that in 2019.
Many developers and analysts first believed in a positive market outlook in 2019. But with new regulations in place, I’m not that certain.
In this article, I share my predictions for Singapore’s property market in 2019.
First of all, I will recap what we saw in 2017-2018 for you to better understand the current market climate.
Topics covered in this article:
- Singapore’s Property market in 2017: A throwback
- Singapore’s property market in 2018
- Increased Additional Buyer’s Stamp Duty as of 2018
- How will Singapore’s property market perform in 2019?
- Are foreigners turning away from Singapore’s property market?
Singapore’s Property market in 2017: A throwback
After being in a downward trend since 2013, Singapore’s real estate market finally began to show signs of recovery in Q2 2017. During Q1-Q2 2017, property prices and rents were still declining, while the demand and prices for land started to increase.
Still, the vacancy rates reached new record levels in 2017, contributing to a further drop in rents.
If we compare 2018 with 2017, we can see that the real estate market gradually recovered. The transaction volumes rose, with a higher demand for newly launched projects.
Volume transactions took up in 2017 and the number of sold units reached similar levels as of 2013. This resulted into the steep price increases we saw in 2018.
According to analysts, there’s been an indication that we’ll see a bounce back, mainly because of the increase in volume transactions, and not due to the actual price increases.
Amount of sold units in Singapore 2015-2017
In 2017, we saw a total market sales of more than 10,000 units. The URA (Urban Redevelopment Authority) reported the following transaction volumes from 2015-2017:
- 2015: 7,440 new units sold
- 2016: 7,972 new units sold
- 2017: 10,566 new units sold
The increase is linked with the improvement in the overall economy as Singapore’s GDP growth rate improved in 2017. At the same time, the unemployment rate decreased.
Still, the market remained in a recovery mode in 2017, with high vacancy rates that kept buyers cautious.
Singapore’s property market in 2018
Housing prices started to rise significantly in the first months of 2018.
Due to the scarcity of available land, developers started to bid fiercely, trying to acquire more land. With higher land prices, developers will, not surprisingly, raise the prices of new units, getting closer to the break-even point.
The 2018 price rises are also backed by a higher demand and a better economic growth:
In addition to capital appreciations, the rentals increased by 0.3% in Q1 2018 and by 1.0% in Q2 2018, which had previously been in decline.
Increased Additional Buyer’s Stamp Duty as of 2018
Many developers are skeptical after the government outlined new tax and policy changes in July 2018.
The high price increases in Q1-Q2 2018 (reaching over 3%) outperformed the government’s and analysts’ expectations, threatening a smooth recovery of the market.
In an attempt to cool down the market, the government announced several curbs in July 2018:
- A 5% increase of the Additional Buyer’s Stamp Duty (ABSD)
- A tightened Loan-to-Value (LTV) ratio by 5%, even when buying a first home
Developers will have to pay 25% more in tax of the land costs (increased from 15%), if they buy land for redevelopment. This is a popular option as vacant land is scarce
The 5% increase of the ABSD rate applies to citizens and permanent residents when buying buying a second home, which will now be 15%. Non-permanent residents and citizens on the other hand need to pay a hefty ABSD rate of 20%, for both first and second homes.
These measures will most likely slow down the market again. Colliers International predicts that the number of new home sales will remain below 9,000 by the end of 2018, which is lower during the same period in 2017.
How will Singapore’s property market perform in 2019?
To make any statements about the market in 2019, we need to check historical data.
If we look at data from previous years, we can see that the market is experiencing strong ups and downs. The market peaked in 2013 and went into a negative phase for almost four years, started recovering first in 2017.
Later, it became one of the hottest markets during the first half of 2018.
With the latest cooling measures in place, the market outlook for 2019 doesn’t seem as promising as before.
When housing prices reached the new heights back in 2013, the government introduced similar property cooling measures, and the demand and prices kept falling for years.
We need to be cautious and should expect the same in 2019.
This is in line with the reaction of The Real Estate Developers Association of Singapore, denouncing the new legislation.
One thing is for sure: developers in Singapore aren’t that happy at the moment.
Bank and real-estate stocks started to tumble directly after the announcement.
Even if RHB Banking Group claimed that property prices were to rise by 20% in 2019, the government came up with the new regulations just two days later.
So, it seems like the property market will remain slow in 2019:
- First, historical data and trends back this claim
- Second, the government has shown that they are ready to introduce new measures, to keep property prices down. This will result in more cautious buyers
- Third, Singapore’s growth rate is predicted to ease down to 2.8% in 2019. To put it in a context, Singapore’s GDP growth was over 10% back in 2010, that fueled the latest market growth
Experts are not positive for Singapore’s economy in the coming time, mainly due to the escalating trade war between China and the US. As Singapore’s economy relies heavily on the health of global trade, we can hear a pessimistic tone from local experts
The Singapore Dollar has lost value against the US dollar since the start of 2018. If this continues, we’ll probably see increased interest rates, which will affect the property market badly
In addition to a less promising economic climate, an increased ABSD and LTV ratio, we also see a high supply of property. Developers invested USD 22 billion in buying new land plots during the past two years. Around 37,000 new units are still under construction.
Out of this number, around 9,000 will be completed in 2019.
Are foreigners turning away from Singapore’s property market?
According to data published by RHB, only 5% of the buyers in Q2 2018 were foreigners.
Just making a comparison, almost 20% of the buyers were foreigners during this time period in 2010 and 2011.
The Singapore property market will most likely slow down in 2019.
Developers and buyers are cautious after the government decided to increase the Additional Buyer’s Stamp Duty, and the LTV ratio.
It’s clear that the government introduces curbs to keep avoid further price increases.
Still, it’s hard to know how the new legislation will affect the market through 2019, and in the long-term (in 2013, we saw the property market tumbling for four consecutive years).
The overall performance of the economy will also have an impact. If the growth rate remains better than expected, buyers can also return to the market sooner than expected.