Singapore's housing market is cooling rapidly
Lalaine C. Delmendo | March 29, 2020
During the latest quarter (i.e. q-o-q in Q4 2019), residential property prices increased by a meager 0.52% (0.22% inflation-adjusted).
The Outside Central Region is still rising fastest:
- In Core Central Region (CCR), prices of non-landed private residential properties fell by 1.7% (-2.5% inflation-adjusted) during 2019, in contrast to a 6.7% expansion in 2018, according to URA. Quarter-on-quarter, prices dropped 2.8% (-3.1% inflation-adjusted) during the latest quarter.
- In the Rest of Central Region (RCR), property prices were up by 2.8% (2% inflation-adjusted) during 2019, a slowdown from a y-o-y increase of 7.4% in the prior year. Quarter-on-quarter, prices actually fell 1.3% (-1.6% inflation-adjusted) in Q4 2019.
- In Outside Central Region (OCR), property prices rose by 4.2% (3.4% inflation-adjusted) during 2019, a sharp slowdown from the previous year's 9.4% rise. During the latest quarter, prices increased 2.8% (2.5% inflation-adjusted).
Demand is falling sharply. Home sales, which include new sales, sub-sales and resales, fell by 13.5% y-o-y to 19,150 units in 2019, following a decline of 11.5% a year earlier, according to the URA.
Yet residential construction is rising strongly. In 2019, there were 11,345 uncompleted private residential units launched in Singapore, sharply up by 29.4% in the previous year, and the highest level since 2013.
Overall, 2o2o will be a challenging year for Singapore's housing market, amidst macroeconomic headwinds and market uncertainties, which are exacerbated by the impact of the novel coronavirus outbreak.
Singapore's economic growth slowed to a minuscule 0.7% growth in 2019 from a year earlier, sharply down from an annual expansion of 3.1% in 2018 and the weakest performance since 2009. This was mainly attributed to a decline in manufacturing and exports sector, amidst the ongoing US-China trade war.
In February 2020, Singapore's Prime Minister Lee HsienLoong said that the economy is on the verge of a recession, mainly due to the expected blow from the COVID19 pandemic. The government recently cut its GDP forecast to a 0.5% contraction, down growth of about 0.5% to 2.5%.
Foreigners have been able to buy any apartment without prior government approval since the Residential Property Act of July 19, 2005. 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.
You wouldn't own a Singapore condominium for rental yields!
Singapore is a safe haven, it is a liquid market, everyone in Asia knows and trusts its institutions. Low interest rates have played their part in pushing property prices up, despite the efforts of the ever-vigilant Monetary Authority of Singapore and the government. Property in Singapore commands a premium, and conversely returns to owners who rent out their properties are low.
Nobody can say that condos in Singapore are cheap, at around US$14,000 - US$18,000 per square metre (sq. m.). That´s because there´s a ´global city´ premium. Gross rental yields in Singapore remain poor, at around 3.0%.
Round trip transaction costs are very low in Singapore. See our Property transaction costs analysis for Singapore and Property transaction costs in Japan, compared to the rest of Asia.
Rental income tax in Singapore is high
Rental Income: Net rental income earned by nonresidents is taxed at 22%. Property tax, insurance, maintenance and repairs are all deductible from gross rental income.
Property Tax: Property tax is levied at a flat rate of 10% for rental properties. Foreigners pay a 10% surcharge.
Capital Gains: There is no capital gains tax.
Inheritance: There is no estate duty as of 15 February 2008.
Residents: Residents are taxed on their income at progressive rates, ranging from 2% to 22%.
Roundtrip buying costs in Singapore can reach 34.45%
The total roundtrip costs are about 13.45% to 34.45%. The buyer pays stamp duty at around 1% to 3%. The buyer may pay additional stamp duty of 5% to 15. Because Singapore uses a common database of all property listings, there is no sense in hiring more than one agent. To register the property, there are four procedures, typically done in six days.
Singapore favours landlords
With the passage of the Control of Rent (Abolition) Act in 2001, the law in Singapore became clearly pro-landlord.
Rents: The parties can freely determine the rent and the rate of rent increase. Tenants usually pay a security deposit of one month’s rent for every year of lease.
Dispute Resolution: Most landlord and tenant disputes are resolved through mediation or Alternative Dispute Resolution, usually through groups such as the Consumer Association of Singapore (CASE) and Singapore Mediation Center (SMC).
Sharp economic slowdown, rising unemploymentSingapore’s economic growth slowed to a minuscule 0.7% in 2019.
Unemployment stood at 2.3% in 2019, up from 2.1% the previous year and the highest level since 2009, according to the Ministry of Manpower (MOM). Unemployment among Singaporeans was 3.3% in 2019, up from 3% a year earlier. Similarly, the jobless rate among PRs rose to 3.1% last year, from 2.9% in 2018.
Headline inflation was 0.8% in January 2020, up from 0.4% a year earlier, according to the Department of Statistics Singapore. However core inflation actually declined to 0.3% in January 2020 – the lowest level in more than four years. Inflationary pressures are expected to remain subdued in the near term, with MAS’s core inflation and CPI-All Items forecast remain at 0.5% to 1.5%.
In October 2019, the country’s central bank, the Monetary Authority of Singapore (MAS), eased its monetary policy for the first time in three years, as the domestic economy only narrowly dodged recession amidst the US-China trade war. MAS decided to lower slightly the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band to ensure medium-term price stability, given the current economic outlook.
The average exchange rate in February 2020 was USD1 = SGD1.39, a slight depreciation from USD1 = SGD1.3537 a year ago.