4 simple Reasons why Singapore property price won’t drop in 2018

As 2018 begins and the price of everything looks set to rise, one of the main concerns Singaporeans should and are rightly concerned about is the rapidly increasing prices of residential properties.

Is the property market set to rise or fall? Will it rise by 2% in 2018 as predicted by some market intelligence firms like ERA Realty Network and Morgan Stanley Research? Or will it fall, in line with reports of a slight decrease of 0.3% in private housing market prices?

Here are our thoughts on why property prices won’t drop!

Reason 1

Land price increases as demand of residential land rises

Land has always been scarce in Singapore. According to a Channel NewsAsia report in June 2017, the government increased the supply of land for housing sites amidst rising demand from home buyers. As the demand for new housing developments continued to rise in the second half of 2017, the government saw a need to inject a larger supply of residential sites. The table below illustrates the confirmed reserve list of nine private residential sites and a commercial site announced in 2017 compared to 3 private residential sites and a commercial site announced during the same period in 2016.

There was also aggressive bidding at public land tenders in 2017, where property developers payed a substantial premium price of 29 percent more for residential plots. This reflected a greater confidence among property developers to develop the residential market.

Based on the report from The Straits Times in May 2017, sales of new homes were aggressive during the first half of 2017; a total of 4,696 units were sold driven by residential projects such as The Clement Canopy and Grandeur Park Residence. Also, positive economic news, such as higher than expected GDP growth, will continue to boost buying sentiment.

The abovementioned factors will collectively contribute to an increasing demand for new properties and new land supply for residential properties. So, for those who have not acquired your first property, it is never too late to start saving as first property purchase requires at least 20 percent down payment.

Reason 2

Property costs are increasing

The key contributors of rising property costs are usually land costs (60% of property cost) and construction costs (30% of property cost) followed by other costs such as finance, marketing, overhead and etc (10% of property cost)

Besides rising land costs, Singapore’s Building and Construction Authority forecasted that construction demand between 2018 to 2019 was expected to remain high at a range of $26 billion to $35 billion. This is probably due to the rising demand for both private and public residential projects.

In addition, according to ERA Realty Network, new launches in 2018 are expected to be launched at slightly higher prices due to higher land and construction costs. This is expected to push prices moderately up by 2 percent in 2018.

Reason 3

Developers have a reputation to keep

This might be controversial but here are our thoughts…

Property prices in subsequent launch phases are always known to be more expensive than the previous ones. Imagine if developers were to lower prices of the subsequent phases drastically, the initial buyers would be displeased, and the developer’s brand would also be at stake. Therefore, developers are unlikely to lower their pricing. Well, everyone hopes their property value appreciates.

On the contrary, Mr Nicholas Mak, Executive Director of Research at SLP International thought otherwise. He quoted “If we look at the few developers that are cutting prices, their projects tend to be a bit isolated. For example, there are no other new 99-year launches near The Panorama and there’s also no similar competing project around Sky Habitat…” We do also see a pattern of developers offering non-cash perks to increase buying intent and justifying higher selling prices.

Reason 4

Singapore Government has 8 cooling measures to adjust

Since 2009, the government had implemented rounds of property cooling measures to manage the market sentiment. What this means is that the government is able to control property prices to a certain extent, by relaxing some of these measures.

We zoom in on two scenarios and how it might affect you. Scenario (1): Currently, foreigners are obliged to pay 15% ABSD for the first or subsequent property in Singapore. Assuming ABSD is reduced, this will lead to an influx in buying sentiment for additional properties for both locals and foreigners. This will lead to the market heating up and result in increasing property prices.

Scenario (2): Adjustment to Seller Stamp Duty (SSD). In 2017, the SSD holding period was lowered from four years to three years and this caused property transaction volume to inch up. If the government removes SSD totally, there will be a huge influx in demand of resale and new property purchase.

So, with these 4 simple factors in mind, know that it is never too early to purchase your first property. Though, we highly recommend understanding your financial situation before starting your search for a property that best meets your specific needs.

Feel free to speak to our friendly advisors to seek free and unbiased reviews on the latest home loan deals at (+65) 6631 8980 (main line). Do leave us a comment in the section below! Follow us on Facebook, Instagram and website for a daily dose of quick financial tips and deals! Thanks for reading!

Aaron Gan

Aaron has spent 6 years in the property industry from smaller developers to conglomerate company in various job exposures from business development, product design, market intelligence research, B2B sales, and digital marketing. He now serves as a digital marketer at EasyRates.