Singapore’s housing prices rising again, outlook promising

May 15, 2018

Singapore house pricesAfter four years of house price falls, Singapore´s housing market is expanding again buoyed by strong economic growth. Demand is rising strongly. Residential construction activity is also rising again, amidst improving homebuilder sentiment.

The private residential property index rose by 5.41% during the year to Q1 2018, its second consecutive quarter of y-o-y price increases and the biggest growth in more than six years, according to the Urban Redevelopment Authority (URA). When adjusted for inflation, house prices actually increased 5.2% during this period. 

During the latest quarter (i.e. q-o-q in Q1 2018), residential prices rose by 3.89% (3.79%% inflation-adjusted) - the steepest q-o-q rise since Q2 2010.

Some major developments that saw significant quarterly price growth in Q1 2018 (according to Jones Lang LaSalle national director Ong Teck Hui):

  • In the Gramercy Park in Grange Road, CCR, prices rose by 9.1% q-o-q in Q1 2018
  • In Martin Modern, off River Valley Road, CCR, prices climbed 14.5% q-o-q
  • In the Reflections at Keppel Bay, CCR, prices rose by 5.7% q-o-q
  • In The Interlace, located in CCR, prices were up 11.8% q-o-q
  • In the Grandeur Park Residences in Bedok, OCR, prices increased 7.8% q-o-q
  • In the Symphony Suites, in Yishun, OCR, prices rose by 3.9% q

All regions also saw rising house prices:

  • In Core Central Region (CCR), prices of non-landed private residential properties rose by 6.6% (6.3% inflation-adjusted) y-o-y to Q1 2018, according to URA.
  • In the Rest of Central Region (RCR), property prices were up by 2.8% (2.6% inflation-adjusted) over the same period.
  • In Outside Central Region (OCR), property prices rose by 6.9% (6.7% inflation-adjusted) during the year to Q1 2018.

Demand remains strong. In 2017, total home sales, which include new sales, sub-sales and resales, surged 52.7% y-o-y to 25,010 units, the biggest increase since 2009, according to URA. Then in Q1 2018, total transactions rose again by 2.4% y-o-y, to 5,328 units.

Singapore´s housing market is expected to improve further in the coming months, as many investors are being lured back into the market, according to some local property experts.

  • "Supported by better-than expected economic growth, the outlook for the Singapore private residential market in 2018 is promising," said Savills. "Prices have started to recover from a slump which has lasted since late 2013 and will continue their upward trend in 2018, driven by bullish prices paid by developers for both private residential sites and GLS sites."
  • "Singapore´s prime residential market has appeared to be more attractive relative to other global cities. It is still in the early stages of recovery while Hong Kong, Sydney, Melbourne and Tokyo are nearer the top end of their market cycles or peaking, while the prime London market is in decline," said Jones Lang LaSalle national director Ong Teck Hui. "That could divert more investor demand to Singapore, thereby supporting further prices increases," said JLL´s Q1 2018 report.
  • Singapore´s home prices will increase by around 4% to 8% this year, without any external shocks, according to Edmund Tie & Company.

Singapore´s economy grew by 3.6% in 2017, faster than the 2.4% growth in 2016, according to the Ministry of Trade and Industry. Recently, the central bank raised its economic growth forecast for 2018 to 3.2%, from 3% last December.

Since July 19, 2005, under the Residential Property Act, foreigners can now buy apartments in buildings of less than six stories without prior government approval. However, foreigners still cannot purchase vacant land and landed properties without permission from the Singapore Land Authority. Non-residential property is not subject to these ownership restrictions.

Aside from these restrictions, foreigners can buy condominiums freely. There are few foreign exchange restrictions, and non-residents can now borrow up to 80% of the property cost locally, in Singapore Dollars.

Stamp duty raised in April 2018 to dampen exuberance

The government raised the stamp duty on home purchases with value exceeding SGD1 million (USD755,500) from 3% to 4% in February 2018, as the apartment sales market had reached levels described by the central bank as "exuberant".

However, market analysts believe that the increased tax is unlikely to dampen demand, as many private residential property transactions are below SGD1 million. And even for those affected, the effective tax increase is very small since the duty is progressive. According to Christine Li of Cushman & Wakefield Research, the effective rise in additional taxes paid for SGD2 million property is only 0.5 percentage point and about 0.9 point for a SGD10 million property.

House price variations

These are the prices in some of the newly launched residential developments in Singapore (based on a Savills report):

  • In Carpmael Thirty-Eight, located in Carpmael Road, RCR, residential units are priced at SGD 1,670 (USD 1,258) per sq. ft. in Q4 2017
  • In the Liiv Residences, located in Pasir Panjang Road, RCR, prices range from SGD 1,705 (USD 1,284) to SGD 1,778 (USD 1,339) per sq. ft. in Q4 2017
  • In Parc Botannia, located in Fernvale Street, OCR, prices range from SGD 1,130 (USD 851) to SGD 1,384 (USD 1,043) per sq. ft.
  • In Rezi 35, located in Lorong 35 Geylang, RCR, prices range from SGD 1,329 (USD 1,001) to SGD 1,640 (USD 1,236) per sq. ft.
  • At The Navian, located in Jalan Eunos, OCR, prices range from SGD 1,483 (USD 1,117) to SGD 1,626 (USD 1,225) per sq. ft.

Market-cooling measures

The decline in house prices in the past four years is the result of deliberate government policy. Before and after the global economic crisis, Singapore´s property market surged, and Singapore experienced an amazingly overheated market. The residential property price index rose 38.2% during the space of only one year to Q2 2010 (34% inflation-adjusted).

The Singapore government sensibly began to take steps, and when these turned out to be not enough, took further measures.

In October 2012 it limited the mortgage term to 35 years, and lowered loan-to-value (LTV) ratios to 60% for loans longer than 30 years (or loans stretching beyond age 65). This was only the first of 10 rounds of property-market cooling measures.

Seller´s stamp duty (SSD) was then introduced on owner-occupied housing sold within a year of purchase. A little later, the stamp duty was revised upwards, with sales of owner-occupied houses taxed sold within a year of acquisition taxed at 16% of sale price.  Then the holding period was increased from one year to four years. In subsequent rounds, LTV ratios were lowered and minimum cash down payment increased.

Despite these measures, property prices kept surging. In the sixth round, new residential loans were capped at 35 years, with existing loans over 35 years facing tighter LTV ratios.  In the seventh round the government revised the additional buyer´s stamp duty (ABSD), increasing rates from 5% to 7% for Permanent Residents´ (PRs) first residential property purchase, and Singaporeans´ second residential purchase.

This resulted in a 23.5% decline in sales transactions within a year, but prices continued to surge till the end of 2013.

Eighth, ninth and tenth rounds of market-cooling measures followed.

These market-cooling measures have been effective, as evidenced by the 11% decline in property prices in the past three years.

Effective March 11, 2017, the government introduced a partial relaxation of its market-cooling measures, as a response to calls to lift these curbs amidst slow sales activity and weak economic growth.

  • Stamp duty is now payable by sellers after three years of purchase, down from four years, and the rate is cut by 4% for each tier. The new rates range from 4% for properties sold in the third year after purchase, to 12% for those sold in the first year.
  • The total debt servicing ratio is also eased. The requirement that loan obligation cannot exceed 60% of gross monthly income is no longer applicable for mortgage loans with loan-to-value (LTV) ratios of 50% and below.

As a result, market sentiment has improved, as evidenced by a strong increase in demand. In 2017, total home sales, which include new sales, sub-sales and resales, surged 52.7% y-o-y to 25,010 units, the biggest increase since 2009, according to the Urban Redevelopment Authority. Though, other factors, such as low interest rates and relatively more affordable property prices, have also contributed to the recent sharp increase in sales.

Resales surging, new sales down

Singapore dwellings sold

Residential demand in Singapore remains strong, mainly driven by resale transactions. Total transactions rose by 2.4% y-o-y in Q1 2018, to 5,328 units, according to the URA.

  • Re-sales soared by 69% y-o-y to 3,666 units in Q1 2018.
  • Uncompleted private residential property sales were down by 49% y-o-y to 1,336 units in Q1 2018.
  • Completed private residential property sales fell by 28.6% y-o-y to 245 units in Q1 2018.
  • Sub-sales rose by 15.7% y-o-y to 81 units during the same quarter.

Demand varies per region:

  • In Core Central Region, property sales rose by 23.6% y-o-y to 901 units in Q1 2018.
  • In the Rest of Central Region, sales increased slightly by 1.1% in Q1 2018 from a year earlier, to 1,525 units.
  • In Outside Central Region, sales fell slightly by 2.1% y-o-y to 2,902 units over the same quarter.

Interest rates are very low

Singapore insterest rates

Interest rates on housing loans have fallen significantly since the late ´90s. From an average of 8.07% in 1998, interest rates on 15-year housing loans dropped to 2.93% in 2014.

Interest rates on 15-year housing loans increased to 3.22% in 2015 and to 3.41% in 2016. However in March 2017 the average housing loan rate was back down again at 3.16%, and has been unchanged since, according to MAS.

Singapore´s prime lending rate has been generally stable in the past 16 years. Currently, the prime lending rate is 5.33%, from 5.35% since January 2014, and previously from 5.38% since January 2008. As a bank´s best (prime) customers (like large corporations) are relatively inelastic to interest rate changes, tweaking the prime lending rate has a miniscule impact on inflation. Therefore the prime lending rate is kept stable.

On the other hand, housing loan interest rates, though priced in relation to the prime lending rate (PLR), are tweaked more often to rein in inflation, as housing borrowers are more sensitive to interest rate changes, and the change in their demand for funds has a considerable impact. Variable interest rate mortgages dominate Singapore´s market, so that interest rate changes can have a rapid and dramatic effect on households with mortgages.

Tweaking the rate on mortgages, plus government restrictions on land use and ownership, has helped pre-empt a housing boom despite sharply lower interest rates over 8-9 years.

Singapore housing loans

Singapore´s mortgage market is one of the most developed in Asia. It expanded sharply during the past two decades, rising from approximately 8% of GDP in 1990, to 15% of GDP in 1996, to 27% of GDP in 2006, and to 44.8% of GDP in 2017. Outstanding housing loans were up 4.4% during the year to February 2018, to SG$201.33 billion (US$151.68 billion), according to the Monetary Authority of Singapore (MAS).

In Singapore, variable interest rate mortgages are pegged to Singapore inter-bank offered rate (SIBOR). A typical SIBOR-pegged adjustable rate mortgage looks like this:

Period Interest Rate (p.a.)
First Year 0.75% + 1-Month SIBOR
Second Year 0.75% + 1-Month SIBOR
Third Year 1.00% + 1-Month SIBOR
Fourth Year Onwards 1.25% + 1-Month SIBOR

The mortgage interest rate therefore comprises two parts a) spread or margin b) index, typically the Singapore interbank offered rate (SIBOR).

The Singapore government has other weapons in its armoury. It controls supply and zones land use through Government Land Sales (GLS) tenders. In addition, the Singapore Land Authority (SLA) restricts foreign ownership of landed property.

Residential construction is rising again

In 2017, there were about 6,020 uncompleted private residential units launched in Singapore, significantly down from 7,877 units in 2016, 7,056 units in 2015 and 7,693 units in 2014, and far below the 15,885 units launched in 2013, and 21,478 units in 2012, according to URA.

Singapore private residential supply

However as homebuilder sentiment has improved, supply is starting to rise. Total supply in the pipeline increased 9.2% to 40,330 units in Q1 2018 from the same period last year.

  • Private residential units under construction dropped 23.7% y-o-y to 24,886 units in Q1 2018.
  • Planned development rose by almost 3.6 times to 15,444 units in Q1 2018 from a year earlier.

Major Upcoming Launches, Q4 2017

Project Location Developer Estimated no. of units
Artra Alexandra View, RCR FEC Skyline Pte Ltd 400
Condominium development St. Thomas Walk, CCR Bukit Sembawang View Pte Ltd 250
Hundred Palms Residences (EC) Yio Chu Kang Road, OCR Hoi Hup Realty Pte Ltd 531
Martin Modern Martin Place, CRC First Bedok Land PteLtd 450
Moulmein27 Moulmein Rise, CCR 27MR Pte Ltd 63
New Futura Leonie Hill Road, CRC City Sunshine Holdings Pte Ltd 124
Seaside Residences Siglap Link, OCR East VuePte Ltd 841
The Brooks I & II Springside Walk, OCR Kallang Development (Pte) Limited 61
Watercove (strata-landed) War Hassan Drive, OCR Sembawang Estates Pte Ltd 80
Source: Savills

In Q1 2018, there were a total of 365,591 housing units available in Singapore, up by 3.8% from the same period last year, according to URA. Of which 338,685 units are occupied, while the remaining 26,906 units are available, making up a 7.4% vacancy rate (down from 7.8% in the previous quarter and 8.1% a year earlier).

Yields for high-end units are very low; HDB yields are good

Singapore rental indices

The weak demand for homes-for-sale in recent years has had a spillover effect on the rental market, as unsold housing inventory competes with existing rental stock for a limited pool of existing tenants. On the demand side, expatriate arrivals are down, due to tighter immigration policies.

For high-end Singapore Centre condominiums yields remain poor, at around 2.5%, according to research conducted by Global Property Guide. Yields are a little higher on smaller apartments than large ones, as is typical in most property markets. But those yields alone would not be a reason for owning property in the country.

These figures are supported by Orange Tee Consultancy, which showed that the average rental yields for private condominiums in Singapore range from a minimum of 2.9% in Core Central Region to a maximum of 3.2% p.a. in the Rest of Central Region in early 2017. In Outside Central Region, gross rental yields have fallen to just 3.3%, from 3.9% in 2012.

Singapore Centre Condos Cost US$ (To Buy) Monthly Rent (US$) Yield (p.a.)
120 square metre 1,649,760 3,498 2.54%
200 square metre 2,666,200 5,874 2.64%
Holland Road, River Valley Road, Orchard Road, and Tanglin Road Source: Global Property Guide

However, rental yields are higher in HDB (Housing and Development Board) Towns - most of which are government-funded flats.

During 2017 (figures are based on a recent report released by Orange Tee Consultancy):

  • Central: rental yields ranged from 6.2% to 7.7% for 3-BR units; 4.4% to 5.9% for 4-BR units; and 3.6% to 4.7% for 5-BR units
  • East: yields ranged from 6.1% to 6.8% for 3-BR units; 5.6% to 6% for 4-BR units; and 4.5% to 5.3% for 5-BR units
  • West: yields were 6.3% to 7.6% for 3-BR units; 5.5% to 6.7% for 4-BR units; and 4.6% to 5.9% for 5-BR units
  • North: yields ranged from 6.5% to 6.9% for 3-BR units; 6.4% to 6.6% for 4-BR units; and 5.2% to 5.6% for 5-BR units
  • North East: yields ranged from 6.7% to 6.8% for 3-BR units; 4.9% to 6% for 4-BR units; and 4.5% to 5.3% for 5-BR units

Rents continue to fall, albeit at a much slower pace. In Q1 2018, the rental index of private all-residential properties fell by 0.8% from the same period last year, an improvement from a 3.6% y-o-y decline in Q1 2017, according to the URA. In fact, during the latest quarter, the overall rental index actually increased 0.3% q-o-q.

This was supported by figures released by Jones Lang LaSalle, which showed that gross rents in the country´s luxury prime market rose by 2.1% q-o-q in Q1 2018.

In Q1 2018, rental index of landed private residential properties fell by 0.82% y-o-y while it dropped by 0.77% y-o-y for non-landed properties.

Rents in all three regions fell during the year to Q1 2018:

  • rents fell by 0.77% y-o-y in Core Central Region
  • rents fell by 0.38% y-o-y in the Rest of Central Region
  • rents fell by 1.18% y-o-y in Outside Central Region  

Singapore residential rent index

Since 2014 many accessible and spacious condominiums have been built in the Outside Central. Many expatriates have relocated from Core Central Region to suburban and fringe areas in Outside Central Region, according to Joseph Tan, CBRE´s executive director (residential).

"Nevertheless, there is still this crème de la crème of senior management and business owners who are inelastic to rental increases and where uber high-end, luxury residential remains their only choice of residence. Core Central Region was meant for the deep-pocketed expatriate. For this category of tenants, only a select number of developments in the Draycott, Claymore and Nassim areas would meet their needs and hence rents in these developments are unlikely to budge from their elevated levels", said Savills Research.

Singapore has a small private rental sector, mostly serving expatriates. In the local sector 81% of all rental units are owned by the HBD.

99-year leasehold properties have the highest rental yields in Singapore because of their lower prices relative to other types of properties.

Foreign demand is crucial

Singapore exchange rate

Singapore now has the sixth-highest percentage of foreigners in the world: about 38% (2 million) of Singapore´s population are foreigners. Of these 10% (o.54 million) are permanent residents, and the remaining 28% (1.46 million) expats.

Tighter immigration rules are being imposed by the government, due to strong popular disquiet. Beginning 1 September 2015 work pass holders need to meet a minimum fixed monthly salary of SG$5,000 (US$ 3,778) to sponsor the stay of their spouse/ children here (on Dependant´s Pass) and a minimum fixed monthly salary of SG$10,000 (US$7,555) to sponsor the stay of their parents here (on Long Term Visit Pass).

Despite this, residential properties purchased by foreigners rose by 63% in 2017 from a year earlier, according to Christine Li of Cushman & Wakefield Research.

"Though the rise in high-end volumes was mostly attributed to Singaporean demand, the number of non-Singaporean buyers has increased as well," Li said.

The Kingsford Hillview Peak, near the Hillview MRT station, and the Cairnhill Nine, located in the Orchard Road district are among the most preferred residential projects among PRs and foreign homebuyers.

Mainland Chinese buyers, Malaysians, Qataris, Indonesians and Indians make up the largest groups of non-Singaporean homebuyers in the country.

Singapore citizens and Singapore Permanent Residents pay a lower additional buyer´s stamp duty on residential property acquisitions than foreigners, depending on the number of properties owned. For Singapore citizens and Singapore Permanent Residents, the maximum rate of additional buyer seller duty is 10%. For foreigners it is a flat rate of 15%.

US citizens are however treated the same as Singapore citizens under the US-Singapore Free Trade Agreement, that is, no additional buyer´s stamp duty is payable on the first Singapore residential property purchase.

Robust economic growth, falling unemployment

Singapore Gdp inflation

Singapore´s economy grew by 3.6% in 2017, faster than the 2.4% growth in 2016 and 2.2% growth in 2015, according to the Ministry of Trade and Industry. The upward momentum continued this year, with a 4.3% expansion in Q1 2018, on the back of strong manufacturing sector, according to the Ministry of Trade and Industry (MTI).

During Q1 2018:

  • The manufacturing sector was the key growth driver, registering a growth of 10.1% y-o-y, up from the 4.8% expansion in the previous quarter.
  • Services, which make up about two-thirds of the economy, expanded by 3.8% y-o-y, slightly up from the previous quarter´s 3.5% growth.
  • Construction contracted by 4.4% y-o-y, an improvement from annual declines of 5% in Q4 2017, 9.3% in Q3, 12.2% in Q2 and 6.9% in Q1.

Recently, the central bank raised its economic growth forecast for 2018 to 3.2%, from 3% last December.

In the first quarter of 2018, the seasonally adjusted overall unemployment rate was 2%, down from 2.1% in the previous quarter and 2.2% a year earlier, according to the Ministry of Manpower (MOM). Unemployment among Singaporeans was unchanged at 3% in Q1 2018 from the previous quarter while it fell from 3% in Q4 2017 to 2.8% in Q1 2018 among Singapore residents. Retrenchments fell to 2,100 - the lowest level in nearly seven years.

Inflation stood at 0.2% in March 2018, from 0.5% in February and 0% in January, according to the Department of Statistics Singapore. Inflation was 0.6% in 2017, -0.5% in both 2015 and 2016, 1% in 2014, 2.4% in 2013, 4.6% in 2012, and 5.2% in 2011. It is estimated that inflation will accelerate to 1.2% in 2018, according to the IMF.

In April 2018, the country´s central bank, the Monetary Authority of Singapore, tightened its monetary policy for the first time in six years, amidst strong economic growth. This policy stance is consistent with a modest and gradual appreciation path of the Singapore dollar nominal effective exchange rate (S$NEER) policy band that will ensure medium-term price stability, said the central bank.

The average exchange rate in March 2018 was USD1 = SGD1.315, a slight appreciation from USD1 = SGD1.405 in the previous year.

"Since October 2017, the S$NEER has appreciated in the upper half of the policy band, apart from a brief period of decline in early 2018. This development reflected, in part, broad-based US dollar weakness and depreciation in a number of regional currencies against the S$," said the MAS in its April 2018 statement.


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