For the first time since 1Q2020, private housing prices declined. This is based on the 2Q2023 real estate statistics as released by URA on 28 July 2023.
For those of us who have been waiting to buy or upgrade to a private property in Singapore, this may feel like a respite that is long overdue. After all, according to URA data, the prices index has gone up by about 27.8%, from 152.1 (1Q2020) to 194.4 (2Q2023).
There have been many macroeconomic factors that have led to the surge in property prices over the past three years. These include a supply shortage of homes due to project delays, a greater demand for homes among young Singaporeans as a result of work-from-home, decade-low interest rates up until 2022, and Singapore being seen by foreigners as a safe haven amid global uncertainty in many other parts of the world.
But have these factors tapered off recently? More importantly, would property prices continue to decline in Singapore?
Read Also: Will 2023 Be The Right Time To Buy A Property In Singapore?
The Rental Index For Private Residential Properties Have Slowed Down As Well
When looking at property demand, one thing we like to look at is the rental market. The rental market is a good proxy for how the short-term property demand and supply situation is faring. In Singapore, rental contracts are typically 1-2 years.
As shared in my previous article, people in Singapore don’t rent for no reason. They do so largely because 1) they are foreigners and don’t have a home in Singapore, 2) are Singaporeans who are waiting for their flat to be ready or for the right time to buy and 3) just need to get out of their parents’ place to live elsewhere for a while.
Generally speaking, all of these factors are transient and may change depending on the circumstances. And a change in these factors would result in changes in the rental index.
In 2Q2023, the rental index went up by 2.3%. The good news, though, is that the increase of 2.3% is significantly lower than the 6.2% increase in the quarter before. So while it’s still treading up, the pace of growth is, at least, slower now.
According to URA.
Rental momentum eased across all market segments. Rentals of non-landed properties in CCR saw an increase of 2.0% in 2nd Quarter 2023, compared with the 6.4% increase in the previous quarter. Similarly, rentals in RCR increased by 2.0%, compared with the 6.2% increase in the previous quarter. Rentals in OCR increased by 2.9%, compared with the 6.1% increase in the previous quarter.
There could be multiple reasons for this slowdown in rental prices. It could be that rates have gone up so high in the past year that it was always bound to hit an upper ceiling when tenants are no longer okay with paying higher prices and are looking for alternatives. Or some people have finally got the keys to their new places and don’t need to rent, thus easing demand.
In any case, it would be worth following closely the rental price index in the next couple of quarters. If it starts declining, that would be a clear sign that demand is easing and we can expect property prices to also decline
Read Also: Renting Or Buying A Property: Which Has Become More Expensive In 2022 With Interest Rate Rising
Cooling Measures & Interest Rates Are Starting To Affect Price
On 26 April 2023, the government introduce another round of property cooling measures by significantly increasing the Additional Buyer’s Stamp Duty (ABSD). The biggest increase was for foreigners buying any residential property in Singapore, from 30% to 60% (as of 27 April 2023). This means a foreigner buying a property in Singapore for $1 million will pay $600,000 in ABSD. In fact, Singapore is likely the most expensive country in the world for a foreigner to buy a residential property.
Perhaps not surprisingly, we are seeing some effect of this on prices. More likely than not, foreigners will now choose to rent instead of buying a property and that will ease demand and prices.
At the same time, the US Federal Reserve has continued raising interest rates over the past 18 months. This has affected the interest rates in Singapore with the 3-month Singapore Overnight Rate Average (SORA) currently at 3.67% as of 1 August 2023.
Because of the cooling measures and the increase in interest rates, buying a property in Singapore now is more expensive than it was previously.
Number Of Unsold Private Residential & ECs Units Are Finally Increasing
The property market tends to move in a cycle and for logical reasons. When demand increases, prices go up and this encourages developers to launch more units. Prices may still continue increasing as long as demand exceeds supply.
One indicator of the demand/supply equation is the total number of unsold private residential units. Launching plenty of units isn’t an indication that prices will go down if people are still buying up all the available units. However, when unsold units start increasing, that is when we know demand is slowing down or that prices are just too high.
As of 2Q2023, there are a total of 49,555 units in the pipeline of which 18,726 remained unsold. If you look at the table above, you can see that the total number of unsold private residential units has started increasing since 4Q2022.
Before anyone gets too excited, do note that this is still a far cry from 1Q2019 when there were 56,803 units in the pipeline of which 38,710 units remained unsold. So the current number of unsold units today is still significantly lower than what was available in 2019.
Moving forward, it’s likely that property prices in Singapore are not going to be increasing as rapidly as they had been the past three years. However, given that demand still looks robust (in the rental market) and that the total number of unsold units remains quite low, we should not expect private property prices to decline much in 2023.
The post Private Home Prices Decline In 2Q2023. Could This Be The Start Of A Price Decline Trend For Properties In Singapore? appeared first on DollarsAndSense.sg.
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