Will Singapore Economy Impact Local Property Price?

Will Singapore Economy Impact Local Property Price?

October 23, 2019

A lot of people are concern and asking, does Singapore economy impact local property price and what are the effects that will

Singapore economy grew by just 0.1% on a year-on-year basis in Quarter 3 2019, data from the Ministry of Trade and Industry (MTI).

This is the lowest growth in a decade, with the same pace with the 0.1% growth in Quarter 2 2019. Economist still believes that Singapore will still have a growth of 0.2-0.5% this year.

The main reason, according to Business Times that mainly affect economic growth are

  1. Trade Tensions – Trade tensions between the US and China leaves a lot of uncertainty. Over 3 years, the US has been negotiating a new trade deal. A clearer picture should emerge in 2019.
  2. Brexit – Brexit leaves a lot of uncertainty between UK and the EU. A clearer picture should also emerge after Oct 2019.
  3. Rising interest rate – Interest rate is 1 of the factor but the US has declared that it will not continue to rise interest rate.
  4. Slowing tech cycle – With the global tech cycle entering a weak patch, manufacturing growth is expected to stay slow next year.
  5. Inflation – Growth may be slowing but inflation seems to be continue to increase.
  6. Neighbouring politics – The uncertainty of Malaysia politics and Hong Kong demonstration has bring benefits to Singapore.
  7. Elections ahead – Will there be a election soon?

 Bouncing Back

According to Fitch Solutions report, Singapore economic growth may pick up in 2020, driven by Hong Kong’s problems. The research firm maintained Singapore’s 2020 GDP growth at 1.7% although they revised down their 2019 real GDP growth forecast to 0.5%.

In addition, the Monetary Authority of Singapore (MAS) is expected to continue to ease policy in a bid to support investment and exports. Interest rates are expected to decrease over the coming months, which in turn would be supportive of investment.

 

Does Singapore Economy really affect Property Pricing?

As a consumer, if one do not know when the recession coming, does it mean that they will never buy and keep waiting? Do not forget that Australia have not had a recession for over 20 years, yet some part of Australia property have been hit hard. Although there may be a slight correlation between a country’s economy and the local property pricing, overall, the government policy still plays the most major role in dictating the local housing market.

Instead of predicting when a recession is happening, focus more on the current supply and demand of the local housing market. In 2019, the current Government Land Sales Residential Units (GLS) is at the lowest of over 10 years, at a figure of 6,475 units released. However at their peak, GLS has been 21,800 in 2014, close to 3 times that!

Moreover, our current population is 5.7m which is in line with the White Paper of population growth of 6.9 million in 2030. With a decreasing birth rate, we would expect more ready buyers of Permanent Residences entering the market. Since there is a demand for housing, and a low supply for new properties, demand and supply is more important factor than just the local economy growth.

No government in the world would want a recession to hit their country, especially with all the uncertainty out there in the world. What is unique to Singapore the the Additional Buyer Stamp Duty that is in placed. For a local to buy a second property, he has to pay an additional 12% tax and a foreigner has to pay an additional 20% tax! Yet with these taxes in placed, due to the uncertainty in Hong Kong political climate, more and more foreign investors are coming to Singapore, especially for properties of $3m and above.

Assuming that a recession hits Singapore which cause the overall market to fall. A very simple solution by the government is to remove the ABSD to lower the burden, foreign money flow back in SG and property price remains stable. This is what out current scenario is. The only disadvantage is more more foreigners will enter Singapore property market, which the government is trying to severely limit.

The most important rule of thumb which we wants to advocate is a buyer MUST be able to ride out the recession of 2-3 years. Sell your property BEFORE the recession, let it continue to construct during recession and also when rent is low and take profit AFTER recession.