Singapore Property | It is expected that the private residential market in Singapore will have better performance in 2018 as consumer sentiments improve. Based on the Consumer Sentiment Survey by PropertyGuru, many homebuyers intend to buy in the next few months due to the strengthening property market.
What is causing this improved sentiment and does it have merit?
There has been a significant improvement in Singapore economy after a poor performance in the last 2 years. GDP rose by 4.6% y-o-y in Q3 2017, 2.9% y-o-y in Q2 and 2% y-o-y in 2016.
The impressive performance in the third quarter was attributed to improvement in the manufacturing sector. However, as other sectors gain momentum and continue to strengthen, they will lead to a more broad-based growth. The projected GDP growth for 2017 was by 3% to 3.5% while growth for 2018 is 1.5% to 3.5%. The rate of unemployment fell from 2.2% to 2.1% from Q2 to Q3 2017.
In March 2017, the Seller’s Stamp Duty rate was lowered and the timeframe for which it applies reduced to 3 years from 4 years. This gave potential investors confidence and peace of mind since they can sell the property earlier without the cost of stamp duty.
The SSD adjustments gave the property market a boost. The transactions for new units improved in 2017 with the first 11 months recording a sale of 11,127 new units exceeding by far the 7,972 units sold in 2016 and 7,440 units sold in 2015.
Since 2013, the sales in the primary market for 2017 exceeded 10,000 for the first time. This strongly indicates that the market is headed for recovery and there is improving demand for private homes.
Also, the level of unsold inventory is at the lowest at 17,000 units. If the volume of transactions remains at around 11,000 units in a year, then the entire unsold inventory should find buyers before 2019 ends.
Demand and consumer sentiment have received more boost from the en bloc sales market. In 2017, more than 3,000 units in 20 developments were en bloc sales, more than have been sold in the previous years. Majority of those displaced by the en bloc sales will need to purchase a replacement property, most likely in the resale private residential market. Since they have the money from the en bloc sale, they can afford to finance their new property.
The en bloc market is driven by 2 main factors. First, the government has reduced the number of land parcels in the Government Land Sales for the last few years. Secondly, the majority of developers are depleting their land bank and since GLS has few lands, they are now turning to en bloc market.
As developers aggressively bid for land, it means that the projects will have a higher breakeven cost and prices are likely to rise in the future. As such, many of the buyers who have been waiting on the sideline are now buying.
The rise in price is already happening as seen in the PropertyGuru Property Index that increased 1.6% y-o-y in Q3 2017 after declining for 16 consecutive quarters. The rise is likely to be less speculative and more sustainable due to the genuine demand and stronger economy.
However, the government may not ease the property cooling measures any time soon. This is because in December 2017, Singapore Monetary Authority warned that the property market will have excessive exuberance due to the rising land prices and the 20,000 units supplied via collective sales and GLS. Also, the GLS for first half 2018 will be similar that of second half 2017.
Also, mortgage loans interest rates are climbing up gradually. The 3-month SIBOR had remained 1% since July 2016 but since August 2017, it has been over 1% while in December, it was around 1.2%. High-interest rates will increase monthly mortgage payable and therefore affect negatively the buyers’ ability to buy a home.
Rents are on a downward trend although slowly as indicated by URA rental index. Condos have an 8.4% vacancy rate while private residential units may continue to have weak rental demand given that Singapore tightly controls the number of foreign workers getting into the country.
So as an investor, you need to have enough money to pay for the mortgage for a number of months when there is no rental income. Also, the high competition for tenants is likely to keep the rents down.
Should you buy private residential properties in Singapore in 2018? Yes, particularly for occupying. While prices have moved up, the increase is small and they are still low in comparison to peak years. In addition, prices may go up in the coming few years due to improving demand and strengthening the economy.
Despite going up, interest rates are still low, although owner-occupiers need to calculate carefully and consider they are increasing. Investors should make sure they have enough money finance mortgage in weak the rental market.