If you are buying a private condo now and hope to make some quick profits after 3-5 years, you might have to think twice about your decision.
The private property market has been on a tear recently. Singapore private home prices jumped 10.6% in 2021- the highest annual growth since 2020. One of the biggest contributing factors to such a high growth is the large number of HDB flats which reached their Minimum Occupancy Period (MOP) last year. Over 25,000 HDB flats reached their MOP in 2021. That is a significantly higher number than the average of the previous years.
Based on the source above which was published in 2020, the average number of HDB flats which reached their MOP from 2016 to 2020 is around 17,000. Hence, 25,000 is a big number when compared to this. This is likely also why the private property market remains resilient in 2021 as this large number of potential HDB upgraders form the majority of the buyers in the private property market despite a lack of buying from the foreigners due to restricted travelling in 2021.
If you think that 25,000 is a big number, you will be surprised with what's coming in 2022. The expected number of HDB units to reach MOP in 2022 is 31,000. We are going to see more HDB upgraders in 2022 and that is inevitably going to have a positive impact on the prices of private properties this year. If not for the latest cooling measures to increase the stamp duties for foreigners, the easing of travelling restrictions this year will have certainly create more buying pressure from the foreign buyers and that will further propelled the prices of private properties.
While foreigner buying pressure might be eased by the latest cooling measures, a lack of new supply of private properties launched this year will be a very strong catalyst for further upside in the prices of private properties. Only 11 new launch projects will be released this year. When coupled with such a large number of HDB upgraders this year, it's almost certain that we will see a healthy rise in the prices of private properties this year. In hindsight, you could have agreed that the government probably had no choice but to implement additional cooling measures late last year as the rise in prices might be uncontrollable if those measures are not introduced timely.
At this point of time, you might be thinking that it's all rosy for the private properties market. Why does the title of this article sounds somewhat negative then? Shouldn't I jump into the market straightaway?
Well, despite the fact that I'm confident that prices will continue to grow this year, I have a few reasons to believe that the growth is likely to stagnate over the next few years.
Firstly, the unusually large number of HDB units to reach MOP in these few years is not something that will happen every year. From 2026 onwards, the number of HDB units which achieved MOP every year is likely going to fall back to the average number of 17,000 or so (as seen in the chart above). Hence, buying pressure from HDB upgraders is likely going to fall moving forward in the next few years. If you were to buy a private property now and hope to sell it in 3-5 years' time, you might be disappointed to know that there are potentially less buyers than what you are seeing now.
Secondly, the price-to-household income ratio (a popular metric to measure affordability) is on a steady increase over the past few years (as shown in the diagram above) and this is certainly not the best news for the growth of private properties prices in the mid term. The number you see on the graph represents the number of years a household needs to save minimally (without spending on anything else) to buy a 1000 ft condo unit. This number has been creeping up and it's especially worse for new launches. This ratio cannot go up forever. Unless the household income in Singapore increases dramatically in the next few years, I will think that the current prices of new launches might be the peak for a few years as the household income starts playing catch-up to reduce the ratio. The ratio for resale private properties is a lot healthier but I think that there will be some pressure for the resale prices to grow a lot more in the next few years. Once it starts to reach a peak value like what we saw in 2013, I'm sure another wave of cooling measures will come again.
Lastly, the government is looking to increase the number of GLS (Government Land Sales) in the medium term. In fact, the number of units made available will go up by 40% in H2 2022. This signifies a willingness by the government to ensure housing continues to remain affordable for Singaporeans by increasing the supply of sites whenever necessary to meet the demand of the home buyers. With the supply under control, that left little room for a supply shock situation to happen in the next few years (though there is a good chance it might still happen this year due to the low number of new launches and high number of HDB upgraders).
While private properties in Singapore are usually a good hedge against inflation and almost guaranteed to enjoy steady price growth over the mid to long term, I'm of the belief that we might be seeing a peak in the growth rate of the prices in private properties this year. 2022 will likely be a good year to sell. If you are buying in 2022, be sure that you have the holding power to service your mortgage over the next decade and not assume that you can simply make your pot of gold by just targeting to sell the unit in 3-5 years.
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