2021 Property Market—Current Scene, Supply & Demand, Where & What to Buy
It’s midway through 2021 (Yes, we can’t believe it either, it feels like just yesterday COVID-19 struck the world and businesses and industries were taking hits), and that means, it’s the perfect time for us to stop, look back at the past six months, and plan forward for the next six months towards the end of 2021.
Today, we will look at the 2021 property market. Specifically, we will look at the current scene, the supply and demand, and what most of you would be most eager to know—where and what to buy during this period of time. Without further ado, let’s begin.
Looking back before looking forward
Before we look forward and project for our plans in the future, it’s important for us to look back at what has been happening first. One year ago, Circuit Breaker was put in place in Singapore due to the rising infections of COVID-19 in the community.
When news of the lockdown-like Circuit Breaker broke, Singaporeans rushed to supermarkets to stock up on daily essentials like toilet paper, cup noodles, and body soap. But it wasn’t just the typical aunties and uncles who panicked—market analysts all around us were fretting too.
As seen from The Business Times article above, market analysts everywhere predicted that there will be an 8% full-year drop in private home prices. Were they right? Well, now, one year later, we are in Phase 2 of the restrictions here in Singapore. And from what we can see, the market analysts couldn’t be more wrong.
From a The Straits Times article in April, HDB resale prices rose 2.8% and there is also an increase in prices in the resale market as well as among the private homes market.
To further this point, as seen from the graphical illustrations above, the HDB resale market saw an increase of 3.1% on the price index in 4Q 2020. On the other hand, the private residential property market saw a increase of 2.1% in the price index. In other words, HDB resale prices are actually increasing more than that of private residential properties, to many people’s surprise.
At this point, you might be asking “Why is this happening?” We’ll give you four reasons which we will dive deeper into in the next sections:
- Increase in confidence in the Singapore property market
- Low increase rates attract more consumers to borrow from banks to purchase properties
- Decrease in supply of properties
- Increase in demand of properties
Let’s first dissect the point about interest rates. For this, we’re going to be talking about the Singapore Interbank Offer Rate, or SIBOR. Put simply, SIBO is the benchmark interest rate for lending between banks in markets within the Asian time zones. Check out this link here to find out the latest SIBOR interest rates that are updated monthly.
As seen from the above, as compared to five years ago in 2017, the interest rates now are at an all-time low. What this means is if you were to take a loan from the bank right now, your interest rate would be about 1.1% to 1.2%. And it is likely that these rates will remain low as long as the US Federation does no increase or spike the interest rates. But because the U.S would also like to recover their economy to prepare themselves for a post-COVID world, they would likely continue to keep interest rates low. Locally too, in Singapore, the government who would like to stimulate the economy, would be motivated to keep interest rates low.
In this win-win situation, governments stimulate the economy, and consumers are able to borrow for less, and demand for properties will increase.
Market confidence & increase in demand
We’ll now look at the story behind the increase in market confidence in Singapore. For this section, we’ll look at a specific group of buyers: young couples. Here, young couples are known as those who are between 20 to 30 years of age, who due to budget limitations, prefer to buy a built-to-order (BTO) flat.
However, due to a shortfall in the number of construction workers in Singapore, HDB announced that a typical BTO flat would take five to six years to construct. This means that couples, who would usually be about 28 years old when they apply for their BTO, would already be 34 years old when they eventually (and finally) get their house. In the meantime, they are unlikely to stay with their parents while waiting for their houses to be built.
As such, young couples in Singapore currently would rather look towards the resale market to find resale HDB flats or resale condominiums. As a result, the demand for the resale market for both HDB and condominiums will increase. Naturally, prices will increase too.
Now, when a young couple buys a house from the resale market, they would have to buy it from someone else. These sellers—we’ll call them upgraders—would probably have had the property for about ten years and decided to sell it to make a decent profit. Thereafter, they would likely want to move on forward and get their dream home. This could be something bigger or nicer, like a private property. When they look to buying private properties, they’ll look at new launches, or the resale condominium market.
This causes a spill-over effect on the resale condominium market—when upgraders who sold their HDB flat to young couples look to purchasing resale condominiums, the prices of resale condominiums go up.
Taken together, the resale prices of both HDB flats and condominiums have sharply increased. This trend, however, can be worrying because sometimes, prices are insanely high and overpriced. As we’ve heard, many HDB flats are $50,000 to $60,000 above valuation. We have also seen the news that there are multiple HDB flats sold for more than a million dollars.
Now that we’ve looked at demand, we’ll naturally have to look at the supply of properties. There are two areas that we can look at for supply—the resale market and the new launch market.
In terms of the resale market, supply is pretty limited compared to its demand. As a result, prices spike. For properties in the new launch market, they could either be En bloc or Government Land Sales (GLS).
Take a look at the table below to see the year-by-year GLS data. In 2012 and 2013, more than 10,000 GLS are released for developers to bid and build properties on the land. But due to the shortfall in construction workers mentioned earlier, less land has been released by the government from developers, as seen from the data from 2019 onwards. For perspective, in the first half of 2021, only 1,605 units have been released.
With this scarcity in supply, developers have no choice but to look towards En bloc in the coming years. This, in turn, causes En bloc dwellers to seek for housing in the resale market after they’ve sold their homes to developers. Therefore, we’ll see, again, an increase in demand for the resale market, and subsequently, a price spike.
We now know that the government is releasing less and less land for sale for developers. Developers, however, require inventory to sell. Therefore, when they bid for a piece of land, developers would likely be more cautious and are unable to bid too highly.
When developers are running close to zero inventory, however, they may have to resort to Enbloc or bidding at an excessively high price. This should then lead to great increase in the sale prices of new launches.
But developers are in quite a sticky situation—they have to price their development in prices that are enticing for buyers. An example is Clavon in Clementi byUOL. They sold 442 units at the average per square foot price of $1640. Taking into consideration the cost of building the development (estimated $1356 per square foot), that leaves developers with a 20% profit margin—a very cautious step taken by developers. For comparison purposes, developers typically make a profit of 30% to 40% when the market is good. Mind you, we have not taken into account costs of marketing and other miscellaneous costs.
Unsurprisingly, this development sold at record-breaking speeds, as consumers were highly attracted by its price. While developers in this case are not maximising their profits, such methods are taken to reduce their stress when they have to operate their business in troubling times.
Where and What to Buy?
Before we go ahead to answer this highly anticipated question, let me ask you a question:
“Would you like to buy something that is above market value? Or do you want to buy something that is undervalued but with a time-constraint (you’ll have to wait)”
let’s take a look at these attractive deals and marketing gimmicks that developers are rolling out these days. You see that developers are giving rental subsidies, buyer savings, and various other special promotions for their property units.
With less people coming in to their show flats, developers have to resort to these methods to get people attracted to their new launches. In turn, opportunities lie largely in the new launch market, which is greatly undervalued.
Where to Buy?
Now that you know what to buy, you might be thinking “so, where should I buy?” To answer this question, take a look at the Price Appreciation vs Transaction Volume chart above. When looking at where to buy your property, you should be looking at the area shaded yellow to hit the sweet spot of high profit growth and high transaction volume.
This narrows your choices down to projects that are in District 14 (Aljunied area), District 5 (Buona Vista / West Coast / Clementi New Town), or District 19 (Tampines and Pasir Ris).
Private Property Price Index (By Region)
Similarly, you can determine where you should buy your property if you look at the Singapore Private Property Price Index by region—Core Central Region (CCR), Outside of Central Region (OCR), and Rest of Central Region (RCR).
From the above, we see from the chart that the price for RCR has shot up due to the fact that Singaporeans who purchase their homes for their own staying, choose to purchase their homes nearer to the suburban areas of Singapore, away from the city. The same trend can be seen for properties in OCR.
Now, if we look at the price index for properties in CCR, it makes sense to invest in a property that is in the CCR (District 1, 2, 9, 10, 11). Its price is currently pretty stagnant and below the all-time-high. This is due to the fact that many countries are in lockdown and investors from around the world are unable to fly into Singapore to purchase these properties. In fact, overseas investors are eyeing the Singapore property market and are merely waiting for travel bans to be lifted so that they can fly in to Singapore to make their purchase.
The CCR property price index is thus expected to increase exponentially when foreign investors come in after travel bubbles set in as the COVID-19 situation slowly stabilises.
Now that you’ve been able to absorb some information about the current property scene in Singapore, its supply and demand, and where and what to buy during this period of time, we hope that you’re able to put your knowledge to action.
If you have your sights set on any property are looking to purchase or enquire about them, who better to contact about luxury condos in Singapore than us here at SG Luxury Condo? We’re here to help answer any questions that you might have and to help you land your dream home. Contact us now!