It has been a while since I wrote a piece on the property market scene in Singapore and I thought that it's timely to look at what has happened in the scene so far.
I wrote an article in July 2020 to summarise what was covered in a report on the direction of the residential prices by J.P.Morgan. In the report, it was mentioned that there's an anticipation of residential prices dropping by 10% over the next two years (from June 2020) due to the recession.
Now that we are about three quarters into 2021, how has that anticipation been holding up?
Interestingly, residential prices for private properties have been growing quite a bit. In 2Q this year, the resale prices for the entire private residential market rose 3.4% year on year to $1,305 psf. New launch prices grew at a faster pace of 17.1% for the same period (2Q 2020 to 2Q 2021). This has caused the gap between new and resale condos to widen to 47.4% in 2Q2021 as compared to 30.2% in 2Q2020. You may refer to the article here for more information.
This strong recovery and rise in private properties has certainly caught many by surprise. Probably no one could have anticipated such a strong price growth a year ago. Not only did the price grows, the volume of transactions also increased rapidly. According to data complied by ERA, private residential property prices totalled S$45 billion- which is the highest volume recorded for the first 8 months of any year in the past decade, and more than any full year total since 2012. This is likely due to the strong buying activity from Chinese investors, and will set to continue as the China government might potentially roll out new taxes targeting the wealthy in China.
Even the Hungry Ghost Month barely create a dent. Prices for non-landed private homes continue to climb 0.5% month on month in August. Similarly, the number of condo units sold climb by 4.9% month on month. This is a rare sign as the Hungry Ghost Month is usually a lull period for properties sales but this all seems to change this year as the demand show no signs of wavering.
While the growth of private properties' prices and volume might be a bit unexpected on an overall scale, the growth in prices and volume for the private properties in the OCR segment wasn't too unexpected. Last year, many has already started to predict that the prices for the private properties in the OCR segment will begin to start to play catch-up to narrow down the price gap between the private properties in the OCR and CCR segment. This turns out to be true as prices in the OCR segment climb by 8% to 11% for the whole of 2021. This is the highest among all the three segments- CCR, RCR and OCR. One of the main reasons behind this is the tight supply situation in the OCR segment. This was already flagged out in the J.P.Mogan article last year. It was then predicted that it will only take 2-3 years to clear the supply backlog for the OCR segment due to the strong demand by HDB upgraders. In the next 1-2 years, we are likely to see the demand growing even more strongly as there will be a bumper crop of 31,300 units reaching their MOP in 2022. Hence, prices for the OCR segment might see even further upside.
Another reason behind the resurgence of interest in the OCR segment is also due to change of working habits in the COVD-19 era. Most people can now work from home and not require to have their homes near to office areas. What they crave for are bigger working spaces and these bigger working spaces can easily be found in the OCR segment for a lower quantum as compared to the CCR and RCR segments.
And this crave for bigger working spaces does not just apply to people who are looking for private properties, it also applies to people who are buying HDB flats. HDB resale prices have been on an absolute tear with a growth of nearly 11% in 2Q2021 on a year on year basis. This is something not seen since the 2010-2011 period. Among the estates which showed the highest price appreciation from 2020 to 2021 year-to-date, Choa Chu Kang claims the top spot with a price surge of 18.4%.
If the rapid price increase in the private properties scene is worrying, the situation for HDB flats is probably worse as HDB flats are meant to be affordable for the majority of Singaporeans. As of 27 Aug, there are already 147 million-dollar HDB resale transactions this year. More and more buyers are paying Cash-Over-Valuation for the resale HDB purchases. In this article by CEO of PropNex Realty, it's predicted that the majority of the HDB flats will be above a million dollars by 2030 if we continue this double digit growth rate on an annual basis. And this is definitely not something affordable for everyone.
Of course, the government will certainly step in for such a situation. What we have seen now is a year of rapid price growth. I'm positive that the government will not allow this to happen for 2 to 3 years straight. If necessary, certain cooling measures will need to be in place to prevent this from happening. The tricky thing though is that the government is now between a rock and a hard place. The economy is on its road to recovery and you might risk upsetting this recovery if you put in the cooling measures now. However, the slow and long construction periods for new residential projects are only to further spur up the demand for resale HDB/private properties (like what we have already seen). If cooling measures are not put in at the right time, the pricing situation will definitely go out of control. I have written an earlier piece in my opinion about the potential cooling measures that I anticipated. You might check it out here.
So if you are an owner of a OCR condo or your HDB flat is going to be MOP soon, congratulations! The market is certainly in your favour right now. But, a sword cuts both ways. If you don't already have an existing place which you can move to after you sell your place, it's probably going to be a zero-sum game again if you are to buy another one immediately.
This is why property might not be the best investment tool in the current era. I will cover more on it in another post.
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