Singapore residential market resilient due to strong foundations

Despite the cooling measures introduced on July 5, 2018, Singapore’s residential property market has stayed resilient and quarterly primary home sales rose in the last three quarters, to the surprise of many.

In the first quarter of 2019, developers sold 1,838 new private homes, 16 per cent higher than the same period the previous year.

Non-landed residential prices outside the core central region have also held up in the last three quarters.

We believe the housing market in Singapore is stable due to sound and sustainable housing policies, which has ensured continued affordability compared to other global cities.

Our research shows that over the last fifteen years, median home prices in global gateway cities have appreciated at six per cent compound annual growth rate (CAGR), more than double those same cities’ rate of median income growth of about 2.5 per cent. The fastest rate of growth was in 2005 to 2007, due to an expansion in lending.

In 2012-2015, quantitative easing and low interest rates encouraged allocation of more capital to real estate and prices rose around 30 per cent over four years.

In these gateway cities, median home price to income ratios (a relatively good measure of local affordability in our view) increased from a range of five to nine years in 2004 to a range of nine to 17 years in 2018.

Rising home prices have impacted younger generations who are struggling to afford their first home.

This has resulted in mounting pressure on governments to provide affordable housing, now commonly seen as important as providing affordable healthcare and education.

Since 2016, governments globally started to address the issue by introducing additional supply, as well as measures to curb price growth.

Canada, Australia, New Zealand, Hong Kong and the United Kingdom imposed additional taxes on foreigner buyers, second-home purchases and vacant homes.

The combination of government intervention and an increase in interest rates has slowed price escalations and in London, Sydney and Vancouver, prices have started to decline.

We believe most governments will continue to keep affordability policies in place until housing costs realign to more affordable levels.

Singapore stands out as leading the pack, as we acted early to prevent home prices from rising to unsustainable levels and ensure affordability for the median household.

In 2010-2013, the government introduced various sets of measures to cool the private residential market and increased housing supply.

On July 5, 2018, additional measures were reintroduced, we believe, in response to rising residential land and unit values and the rise in new residential investment loans.

Singapore’s housing policy has addressed both demand and supply. It has achieved one of the most successful outcomes in any global city. Singapore’s median home price is estimated to be 4.6 years of income as at end-2018, lower than the 6.1 years in 2012.

The ratio for the median private residential unit is estimated to be 6.2 years as at end-2018, compared to 7.5 years in 2012, using the equivalent 85th percentile household income.

We see limited downside for the Singapore residential market as prices are affordable and the government is likely to manage prices to track income growth.

Over the last twenty years, both prices and household incomes enjoyed a steady compound annual growth rate of 3 to 4 per cent.

Upcoming supply is low, growing by less than 2 per cent annually in 2019-2020. The Singapore dollar has also been resilient, appreciating against the US dollar over the last 15 years.

While buyer stamp duties are relatively high, holding and selling costs are competitive for buyers who invest for the long term.

By Regina Lim – head of South-east Asia Capital Markets Research, JLL Asia Pacific

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