Singapore real estate market in full swing

Boosted by a strong economy, the recovery of Singapore’s residential property market has picked up speed. The private residential property price index registered a 10.2% (9.5% in real terms) increase in 2006. This is higher than 2005’s 3.9% price increase (2.7% in real terms).

Since its recovery in 2004, property prices are up by 15.8% (13.1% in real terms). However, the private housing sector is still overshadowed by the Housing and Development Board (HDB).

Aside from strong economic growth (7.9% GDP growth rate in 2006, 6.4% in 2005 and 8.7% in 2004), the housing market has been boosted by policies implemented last July 19, 2005. These policies include:

• the relaxation on foreign ownership of apartments
• an increase of the maximum loan-to-value ratio from 80% to 90%
• a reduction of cash down payments from 10% to 5% for home purchase
• allowing non-related singles to use their Central Provident Fund (CPF, a social security pension scheme) to jointly purchase residential properties.

Housing policy

A major goal of Singapore’s government is to promote home-ownership. The government, through the Housing and Development Board (HDB), Urban Redevelopment Board (URB), Monetary Authority of Singapore (MAS) and the CPF, was able to increase home ownership from 27% in 1970 to its present level of around 92%.

Singapore had a serious housing crisis soon after independence. The HDB was created in 1960 to deal with this shortage and administer the housing sector. Between 1960 and 1965, 54,430 high-rise and high density flats were created, chosen due to land shortage. The share of Singaporeans living in HDB flats has ranged from 80% to 90% through the years.

With economic stability and increased purchasing power, the immense demand for housing in Singapore led to rapid increases in house prices in the 1980s to 1990s. From 1986 to 1996, private residential price index rose by about 440%. The government, then, stepped in and curbed property speculation.

Property price fall

In 1993, the housing financing policy for resale HDB flats was liberalized. Flats were allowed to be financed based on market prices and not HDB-listed prices that were substantially lower. In response, the number of flats available to the private sector jumped by more than 50,000 (from 78,012 to 129,106) in 1995.

The increased supply, plus the intense campaign against speculation, combined with the effects of the Asian crisis, led to a 45% fall in prices in just two years (1996-1998). The housing market slightly recovered from 1998 to 2000, but global events plunged it back to crisis.

Despite the recent recovery, property prices in 2006 were still 28% below their peak 1996 level (33.4% in real terms).

Small rental sector

With the most successful home-ownership program in the world, the rental sector in Singapore is very small, mostly designed for the expatriate market. The local private rental sector is much smaller because the HDB owns about 81% of all rental units.

Most of the expat-compatible apartments are located in buildings with amenities such as pools, tennis courts, and gym. Sized at 800 to 2,000 sq. m., there were 9,986 executive condominiums as of fourth-quarter of 2006. The vacancy rate for executive condos was 5%, lower than the vacancy rate for all private residential units, at 6%.

When residential prices rose by almost 100% from 1990 to 1996, rents grew by only 52%. And when property prices started rising in 2004, rents only started to rise significantly in 2006, with a 14% increase.