Singapore’s house prices continue to fall

Singapore housing prices continue to fall, amidst weak economic growth. The private residential property index fell by 3.37% during the year to Q1 2015, its ninth consecutive quarter of y-o-y price falls, based on figures from the Urban Redevelopment Authority (URA). When adjusted for inflation, house prices fell by 2.35% during this period.

During the latest quarter (i.e. q-o-q in Q1 2016), residential prices fell by 0.71% (-0.43%% inflation-adjusted).

All regions also saw falling house prices:

• In Core Central Region (CCR), prices of non-landed private residential properties fell by 1.8% (-0.8% inflation-adjusted) y-o-y to Q1 2016.
• In the Rest of Central Region (RCR), property prices were down by 2.6% (-1.6% inflation-adjusted) over the same period.
• In Outside Central Region (OCR), property prices fell by 4%(-3% inflation-adjusted) during the year to Q1 2016.

Prices of high-end, non-landed homes fell slightly by 0.2% q-o-q in Q1 2016, to an average of SGD2,239 (US$1,652) per square metre (sq. m.), according to Savills.

The continued decline in house prices is the result of deliberate government policy. Before and after the global economic crisis, Singapore’s property market surged, and Singapore experienced an amazingly overheated market. The residential property price index rose 38.2% during the space of only one year to Q2 2010  (34% inflation-adjusted).

The Singapore government sensibly began to take steps, and when these turned out to be not enough, took further measures.

In October 2012 it limited the mortgage term to 35 years, and lowered loan-to-value (LTV) ratios to 60% for loans longer than 30 years (or loans stretching beyond age 65). This was only the first of 10 rounds of property-market cooling measures.

Seller’s stamp duty (SSD) was then introduced on owner-occupied housing sold within a year of purchase. A little later, the stamp duty was revised upwards, with sakes of owner-occupied houses taxed sold within a year of acquisition taxed at 16% of sale price.  Then the holding period was increased from one year to four years. In subsequent rounds, LTV ratios were lowered and minimum cash down payment increased.

Despite these measures, property prices kept surging. In the sixth round, new residential loans were capped at 35 years, with existing loans over 35 years facing tighter LTV ratios.  In the seventh round the government revised the additional buyer’s stamp duty (ABSD), increasing rates from 5% to 7% for Permanent Residents’ (PRs) first residential property purchase, and Singaporeans’ second residential purchase.

This resulted in a 23.5% decline in sales transactions within a year, but prices continued to surge till the end of 2013.

Eighth, ninth and tenth rounds of market-cooling measures followed.

These market-cooling measures have been effective, as evidenced by the 9% decline in property prices since the peak in Q3 2013.

Responding to calls to lift the cooling measures, the government reiterated that while these policies have been effective in stabilizing the previously overheating property market, relaxing them may risk a premature market rebound, according to Minister for National Development Lawrence Wong.

“The government might be persuaded to relax some measures if home price decline picks up pace such that annual declines threaten to enter into double digit territory amid slow sales activity and economy,” said Tay Huey Ying of JLL Singapore.

Singapore’s housing market is expected to remain depressed in the coming months, amidst weak economic growth and restrictive government policies, according to some local property experts.

Singapore´s economy expanded by 1.8% y-o-y in Q1 2016, at par with the previous two quarters, according to the Monetary Authority of Singapore. GDP growth is expected between 1% and 3% this year, from 2% in 2015, 3.3% in 2014, 4.7% in 2013, 3.7% in 2012, and 6.2% in 2011.

Regional property price variations

Region-wise, property prices vary significantly. In new major residential developments in different regions (based on a Savills report):

• In Cairnhill Nine, located in Cairnhill Road, CCR, prices range from SGD1,726 (US$1,274) to SGD2,829 (US$2,087) per sq. m.
• In 183 LongHaus, located in Upper Thomson Road, RCR, prices range from SGD1,441 (US$1,063) to SGD1,660 (US$1,225) per sq. m.
• In The Wisteria, situated in Yishun Ring Road, OCR, prices range from SGD970 (US$716) to SGD1,294 (US$955) per sq. m.
• In Wandervale, located in Choa Chu Kang Avenue 3, OCR, prices range from SGD683 (US$504) to SGD836 (US$617) per sq. m.

Demand is now rising, but still below peak levels

Residential property demand in Singapore is now starting to rise, but remains far below peak levels seen in 2007.

Transactions rose by 7.23% y-o-y in Q1 2016, to 2,847 units, according to the URA:

• Uncompleted private residential property sales were up by 8.03% y-o-y to 1,359 units in Q1 2016.
• Completed private residential property sales rose 13.21% y-o-y to 60 units.
• Sub-sales fell 6.38% y-o-y to 88 units.
• Re-sales rose by 7.2% y-o-y to 1,340 units during the same quarter.

Demand varies per region:

• In Core Central Region, property sales rose 55.3% y-o-y to 584 units in Q1 2016.
• In the Rest of Central Region, sales were down by 16.3% y-o-y to 720 units.
• In Outside Central Region, sales rose 8.7% y-o-y to 1,543 units.

Interest rates rising gradually

Singapore’s mortgage market is one of the most developed in Asia. It expanded sharply during the past two decades, rising from approximately 14% of GDP in 1995, to 29.2% of GDP in 2005, and to 45.9% of GDP in 2015.  Outstanding housing loans were up 3.6% during the year to April 2016, to SG$185.9 billion (US$137.1 billion), according to the Monetary Authority of Singapore (MAS).

Interest rates on housing loans have fallen significantly since the late ‘90s. From an average of 8.07% in 1998, interest rates on 15-year housing loans dropped to 2.93% in 2014. However, interest rates have been rising slowly in recent months. In April 2016, the average housing loan rate stood at 3.39%, up from 3.1% in the same period last year, according to MAS.

In contrast to falling housing loan interest rates, Singapore’s prime lending rate has been stable at 5.35% since January 2014, and previously was at 5.38% since January 2008.  As a bank’s best (prime) customers like large corporations are relatively inelastic to interest rate change, tweaking the prime lending rate has miniscule impact on inflation. Hence, banks keep a more or less stable prime lending rate.

On the other hand, housing loan interest rates, though priced in relation to the prime lending rate (PLR), are tweaked more often to rein in inflation, as housing borrowers are more sensitive to interest rate changes, and the change in their demand for funds has a considerable impact.  Variable interest rate mortgages dominate Singapore´s market, so that interest rate changes can have a rapid and dramatic effect on households with mortgages.

Tweaking the rate on mortgages, plus government restrictions on land use and ownership, has helped pre-empt a housing boom despite sharply lower interest rates over 8-9 years.

In Singapore, variable interest rate mortgages are pegged to Singapore inter-bank offered rate (SIBOR). A typical SIBOR-pegged adjustable rate mortgage looks like this:

Period	Interest Rate (p.a.)
First Year	0.75% + 1-Month SIBOR
Second Year	0.75% + 1-Month SIBOR
Third Year	1.00% + 1-Month SIBOR
Fourth Year Onwards	1.25% + 1-Month SIBOR

The mortgage interest rate therefore comprises two parts a) spread or margin b) index, typically the Singapore interbank offered rate (SIBOR).

The Singapore government has other weapons in its armoury.  It also controls supply and zones land use through Government Land Sales (GLS) tenders. In addition, the Singapore Land Authority (SLA) restricts foreign ownership of landed property.

The rental market is a tenant’s market

The weak demand for homes-for-sale has had a spillover effect on the rental market, as unsold housing inventory competes with existing rental stock for a limited pool of existing tenants. On the demand side, expatriate arrivals are down due to tighter immigration policies.

In Q1 2016, the rental index of private all-residential properties fell by 1.3% q-o-q, and by 4.2% from a year earlier, according to the URA. Over the same period, rental index of landed private residential properties fell by 5.5% y-o-y while it dropped by 4% y-o-y for non-landed properties.

Rents in all three regions fell during the year to Q1 2016:

• rents fell by 3.6% y-o-y in Core Central Region
• rents fell by 4.1% y-o-y in the Rest of Central Region
• rents fell by 4.9% y-o-y in Outside Central Region

This was supported by figures released by Jones Lang LaSalle, which showed that gross rents in the country’s typical prime market fell by 1.3% q-o-q in Q1 2016 and by 2.7% in the luxury prime segment.

Singapore has a small private rental sector, mostly serving expatriates. In the local sector 81% of all rental units are owned by the HBD. Average rental yields for private condominiums in Singapore are poor, ranging from a minimum of 2.7 % in Core Central Region to a maximum of 3.9% p.a. in Outside Central Region, based on a recent report released by Orange Tee Consultancy.

99-year leasehold properties have the highest rental yields in Singapore because of their lower prices relative to other types of properties.

“As tenants are generally not concerned about the tenure of the property, leasehold properties tend to have an advantage as compared to freehold when looking purely at rental yields,” said Orange Tee Consultancy.

Developments with the highest rental yields in Q1 2016:

• Suites@Eastcoast in Bedok has the highest gross rental yield of 5.7%
• In The Clift, located in Downtown Core, gross rental yield was 4.8%
• In Vista Park, located in Queenstown, gross rental yield was 4.7%
• In Park West, located in Clementi, gross rental yield was 4.6%
• In Rivervale Crest in Sengkang, gross rental yield stood at 4.4%
• Other developments with modest rental yields of an average of 4.3% included Kerrisdale in Kallang,Skysuites@Anson in Downtown Core, Glentrees in Bukit Timah, Iconin Downtown Core, Melville Park in Tampines, and Loyang Vallet in Pasir Ris.

For high-end Singapore Centre condominiums yields remain poor, at around 2.5%, according to a research conducted by Global Property Guidein May 2016. Yields are a little higher on smaller apartments than large ones, as is typical in most property markets. But those yields alone would not be a reason for owning property in the country.

Singapore Centre Condos	Cost US$ (To Buy)	Monthly Rent (US$)	Yield (p.a.)
120 square metre	1,649,760	3,498	2.54%
200 square metre	2,666,200	5,874	2.64%
Holland Road, River Valley Road, Orchard Road, and Tanglin Road Source: Global Property Guide, May 15, 2016

Accessible and spacious condominiums sprouted in the Outside Central Region since 2014, and according to Joseph Tan, Executive Director of residential, CBRE many expatriates have relocated from Core Central Region to suburban and fringe areas in Outside Central Region.

“Nevertheless, there is still this crème de la crème of senior management and business owners who are inelastic to rental increases and where uber high-end, luxury residential remains their only choice of residence. Core Central Region was meant for the deep-pocketed expatriate. For this category of tenants, only a select number of developments in the Draycott, Claymore and Nassim areas would meet their needs and hence rents in these developments are unlikely to budge from their elevated levels”, said Savills Research.

Housing supply declining

In 2015, there were about 7,056 uncompleted private residential units launched, down from 7,693 units in 2014, 15,885 units in 2013, and 21,478 units in 2012, according to URA. The downward trend continued in the first quarter of 2016, with the number of uncompleted private residential units launched falling by almost 20% to just 953 units.

Supply in the pipeline is also falling:

• Private residential units under construction dropped 20.8% y-o-y to 46,815 units in Q1 2016.
• Planned development also declined by 26.4% y-o-y to 6,697 units in Q1 2016.

However, the government recently announces that it will be building 18,000 new flats this year.

In Q1 2016, there were a total of 330,303 housing units available in Singapore, up by 6% from the same period last year, according to URA. Of which, 305,384 units are occupied while the remaining 24,919 units are available, making up a 7.5% vacancy rate (up from 7.2% in the previous year).

Foreign demand is crucial

Singapore now has the sixth-highest percentage of foreigners in the world: about 38% (2 million) of Singapore’s population are foreigners. Of these 10% (o.54 million) are permanent residents, and the remaining 28% (1.46 million) expats.

Tighter immigration rules are being imposed by the government, due to strong popular disquiet. Beginning 1 September 2015 work pass holders need to meet a minimum fixed monthly salary of SG$5,000 (US$ 3,630) to sponsor the stay of their spouse/ children here (on Dependant’s Pass) and a minimum fixed monthly salary of  SG$10,000 (US$7,260) to sponsor the stay of their parents here (on Long Term Visit Pass).

Residential properties purchased by foreigners rose by 5.4% to 236 units in Q1 2016 from the previous quarter, according to a DTZ report. Likewise, purchases by permanent residents (PRs) also increased by 2.6% q-o-q to 591 units over the same period.

Interestingly, foreigners and PRs continue to demand high-end properties, priced above $1.5 million. PRs purchased 46 homes priced between $2 million and $3 million in Q1 2016, up 24% from the previous quarter. Foreigners purchased 40 homes within the same price range, more than twice the previous quarter.

The Kingsford Hillview Peak, near the Hillview MRT station, and the Cairnhill Nine, located in the Orchard Road district emerged as the two most preferred residential projects among PRs and foreign homebuyers, according to DTZ.

Mainland Chinese buyers and Malaysians make up the largest groups of non-Singaporean homebuyers in the country, at around 42.4% of total foreign purchases in Q1 2016. They are followed by Indonesians and Indians.

Singapore citizens and Singapore Permanent Residents pay lower additional buyer’s stamp duty on residential property acquisitions than foreigners depending on the number of properties owned. For Singapore citizens and Singapore Permanent Residents the maximum rate of additional buyer seller duty is 10% and for foreigners it is a flat rate of 15%. US citizens are however treated the same as Singapore citizens for additional buyer’s stamp duty, under the US-Singapore Free Trade Agreement, that is, no additional buyer’s stamp duty is payable on the first Singapore residential property purchase.

“Prices are still at a low point and there are a lot of savvy, rich people on the lookout for good investment opportunities to take a position just before the market turns. This is the correct time for the rich (to enter the market),” said Mr. George Tan Senior Director, Savills Residential.

Economy remains weak

Singapore´s economy expanded by 1.8% y-o-y in Q1 2016, at par with the previous two quarters, according to the Monetary Authority of Singapore. GDP growth is expected between 1% and 3% this year, from 2% in 2015, 3.3% in 2014, 4.7% in 2013, 3.7% in 2012, and 6.2% in 2011.

In the first quarter of 2016, overall unemployment stood at 1.9%, unchanged from the previous quarter but down slightly from an average unemployment rate of 2% in 2010-2014, according to the Ministry of Manpower (MOM). Unemployment among Singaporeans increased from 3% in Q4 2015 to 2.6% in Q1 2016, but dropped among Singapore residents from 2.9% to 2.7%. Long-term unemployment rate rose from 0.5% to 0.7% over the same period.

Inflation was -0.5% in April 2016, from -1% in the previous month. Inflation was -0.5% in 2015, 1% in 2014, 2.4% in 2013, 4.6% in 2012, 5.2% in 2011. It is estimated that inflation will be 0.2% in 2016, according to the IMF.

The country’s central bank, the Monetary Authority of Singapore, has set a tight monetary policy in since April 2010, allowing a “modest and gradual” appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band. However in April 2016, the central bank decided to abandon the previous policy and set the rate of the Singapore dollar´s appreciation to zero percent, in an effort to buoy economic growth against a dimmer global economic outlook.

“This is not a policy to depreciate the domestic currency, and only removes the modest and gradual appreciation path of the S$NEER policy band that was in place,” the MAS reports.

The average exchange rate in May 2016 was USD1 = SGD1.3698, slightly down from USD1 = SGD1.3353 in the previous year.