Why Singapore Property Prices Keep Increasing Despite Falling Transaction Volume

Did you know that condo resale volume has been falling for the 4th consecutive month since May, and yet, prices are still continuing to increase? To many people, that will sound like a strange and impossible phenomenon. But what if I were to tell you there are several reasons why this is happening in Singapore today? 

Read on to understand why is there such a phenomenon in Singapore’s real estate market, and my predictions for the future 6 months’ property market.

Volume Transaction for year August 21-22
Volume Transaction for year August 21-22

As you can see from the chart above, there has been a decreasing volume of transactions for private properties.

In fact, this has been happening for the fourth consecutive month since May! With this decreasing monthly condo resale volume, one might expect that the prices for private properties will also decrease similarly. However, this is not the case!


Property Price Trend for August 21-22
Property Price Trend for August 21-22

Instead, condo resale prices have been increasing consistently. As you can see from the chart above, prices of condo resales actually went up from 1.2% last month, from July 2 all the way to August. At the same time, if we compare the prices for condo resales from August 2021 to August 2022, prices have increased by an astonishing 10.5%.

Essentially, condo resale prices are consistently increasing and it is not showing any signs of slowing down.

And this is the strange phenomenon in Singapore’s real estate market – a growing trend in property prices, and yet, a decreasing transaction volume.

TDSR – The Ability to Hold

To understand why this strange phenomenon is occurring, you need to understand what exactly is Total Debt Servicing Ratio first. Also known as TDSR for short, it was introduced by Mr Tharman, our finance minister then, in June 2013.

The introduction of TDSR was to prevent something similar to the Subprime Lehman’s Brother crisis that happened in the United States in 2008 – a subprime mortgage crisis that collapsed United States’ economy. According to the government, TDSR refers to a part of the borrower’s gross monthly income that goes towards repaying the monthly debt obligations, which also includes the loan being applied for. And currently, the TDSR threshold is at 55% and the interest rate is around 2 to 2.5%. Check out our Affordability Calculator here!

Let’s assume that the interest rate continues to grow up to 3.5%. So what does this, coupled with TDSR, mean for property owners? Essentially, it means that property owners will be able to take home 45% and at the same time, able to use a maximum of 55% of their income to finance their property. In fact, this also excludes their bonuses! Therefore, because of the introduction of TDSR, has allowed Singapore property to be so stable and benefit property owners.


Selling Above Valuation Prices

It has become so beneficial that anyone that purchased a property post-TDSR era is able to hold on to their properties and they are not forced to sell the property. This is the complete opposite of the pre-TDSR period (before 2013), where sellers are forced to sell their properties at the market valuation price or lower.

Instead, now property owners are not hard up to sell their property at the market valuation price. At the same time, they would even choose not to sell their property at all if they are unable to sell it above the valuation price.

In fact, this has caused a “seller’s market” today. Where sellers will not want to sell their properties at a low pricing. Rather, they will actually sell and market their property at much higher pricing. And if they can’t find a buyer that is willing to purchase the above valuation pricing, they will just decide not to sell at all and continue to hold on to this property.

Increasing Rental

TDSR has also caused increasing property rental prices. In fact, rental prices have actually gone up by 40%! After all, property owners who are unable to sell their properties at a higher than valuation price would rather rent out their properties instead.

In fact, one of my clients was actually thinking of selling his one-bedroom for 1.2 million. And unfortunately, due to the current market, he was unable to fetch this pricing although his one-bedroom was in a prime location. But instead of selling at a lower price, he sought my opinion and advice on the rental market. His previous tenant actually rented with him at $2600, but I recommended a $3000 rental price because I knew of the increasing rental market trend.

And it actually garnered numerous interests and inquiries that we actually managed to close his renter at $3400! As you can see from this real-life example, there is a very high percentage of increase in rentals at about 40%. Therefore, this group of sellers or investors would rather rent their properties if they are unable to fetch the price they want, which can give them a better return.


Buyer-Seller Psychology Mismatch

Now that you understand why there is a rising trend in property prices in Singapore, it is time to understand why the transaction volume is so low. This is where the buyer-seller psychology mismatch comes to play.

Property Prices Demand outweighs Supply

As previously mentioned, it is currently a seller’s market whereby there are more buyers compared to sellers. In other words, there is more demand than there is supply. And because of this reason, there is a buyer and seller psychological mismatch whereby buyers want to buy properties at a low price, while sellers actually want to sell as high as possible.

Remember, sellers would rather sell their properties above valuation. And because of this mismatch, a lot of the transactions are unable to successfully go through. Therefore, this is the main reason why the volume remains very low.

With that said, buyers who have seen many condos and tried to negotiate the prices will also realise that every seller wants to sell above valuation prices. After all, there are some good condos out there that have very limited stocks and sellers know they can leverage this. As such, this group of buyers, coupled with those who can’t wait and need a place immediately or those that loved that particular property, will have no choice but to purchase a resale unit at much higher pricing than what they expect.

Essentially, they are willing to pay above valuation. As such, this group of buyers is why the property market continues to go up, where prices have increased by 2.2% (month-to-month). Through my experience, units, regardless of price are sold off within 1-2 weeks of marketing.

On the other hand, there is also a big group of buyers who are actually inexperienced when they see one property give a valuation and they will not pay anything above the valuation price. So if this group of buyers is unwilling to pay a higher price, how can they get a property? Well, they will actually enter into the new launch market where although the prices may be high, they know that everybody will be paying roughly the same price and they will not pay above valuation.

Alternatively, they may prefer to have a wait-and-see approach. Now, this is the main reason that causes why transaction volumes are very low.

To put it simply, there is a huge gap between the expectations of buyers and sellers. In fact, the decreasing volume in resale properties since April may also be an indicator of the increasing price expectations between sellers and buyers, driven by the increasing mortgage rates as both sides adopt a wait-and-see approach. This buyer-seller psychology mismatch is the main reason for the strange phenomenon in Singapore’s real estate market.


My Predictions

Low Housing Supply for 2022 and Beyond

In my opinion, this trend of increasing property prices and decreasing transaction volume will still continue to happen. And why do I say so? This is because as long as the supply does not match the demand, this trend will continue to grow.

Property Inventory for Singapore 2023
Increasing Property Supply for year 2023

However, do take note that for next year there will be more supply entering the market as more properties reach TOP. This will stabilize the prices of properties, and yet the supply will not overflood the market.

Again, sellers will rather hold out and are not willing to sell at a low price due to TDSR. Eventually, with the wait-and-see approach buyers might wait for 2 to 3 years before deciding to enter the market when the price stabilizes.

Once again, you have to understand these two things. Firstly, because of the TDSR, sellers or investors will want to hold onto their properties and sell them at a good price.

Therefore, if they are not able to fetch it at a good price, they will have a wait-and-see approach or they will actually rent it out. Now, buyers who are still sitting on the fence or waiting for the property market to drop will actually eventually enter the market if the price still doesn’t drop at all.

This is also because they still need a property, therefore entering the market. This actually causes an increased demand in the market. As such, I expect that property prices will not drop, instead, they will stabilize next year as there’s more demand entering the market.

With that said, I hope that this article on the strange phenomenon in Singapore’s property market and my prediction on what will happen in the future can not only help you better understand Singapore’s property market better, but also allow you to make the best plan.

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