Prices rebound on higher sales
The private residential market saw a rebound as many developers ramped up launches and more buyers streamed back to the market last quarter. Buying sentiment picked up after most community safe management and border measures were eased. Show flat and house viewings rose substantially, significantly boosting the sector.
Prices
According to data from the Urban Redevelopment Authority (URA), the overall price index for private residential properties rose faster by 3.5 per cent last quarter. It climbed by 4.2 per cent in the first six months of this year. Price growth was much slower at 0.7 per cent in the first quarter of this year after the market cooled down on the back of the curbs implemented in December 2021.
Prices climbed faster last quarter as there were more new sales and these homes are usually sold at higher prices than resale homes. There was also a higher number of pricier transactions of at least S$2 million in Q2.
Non-landed prices rose by 3.6 per cent in the second quarter of this year, rebounding from the 0.3 per cent decline in Q1 2022. Landed home prices rose by 2.9 per cent quarter-on-quarter (q-o-q) in Q2 2022.
By market segment, prices rose the most in the city fringe, or the Rest of Central Region (RCR), by 6.4 per cent. This is followed by non-landed homes in the suburbs or Outside Central Region (OCR), which increased by 2.1 per cent, and the prime districts, or Core Central Region (CCR), which rose by 1.9 per cent.
Sales volume
URA data shows sales volume rose by 27.5 per cent from 5,343 units in Q1 to 6,811 units in Q2 2022. The sales increase was observed across all sales types. New home sales excluding EC rose by 31.3 from 1,825 units in Q1 2022 to 2,397 units in Q2 2022, resales climbed by 25.4 per cent from 3,377 units to 4,236 units over the same period, while subsale increased by 26.2 per cent.
Nationality
Foreigner and PR purchases rebounded last quarter. Based on URA Realis data, the number of non-landed homes excluding EC bought by foreigners or non Permanent Residents (non-PR) surged by 102.8 per cent from 144 units in Q1 2022 to 292 units in Q2 2022. The proportion of foreign purchases climbed from 3.1 per cent to 4.9 per cent over the same period. Foreign purchases increased by 3.9 per cent y-o-y from 281 units in Q2 2021. The number of non-landed homes bought by PRs rose by 21.4 per cent from 841 units in Q1 2022 to 1,021 units in Q2 2022. Singaporean purchases increased by 27.3 per cent q-o-q to 4,648 units in Q2 2022.
The rebound in foreigner and PR purchases indicates that many foreigners are still keen to park their money in Singapore despite the cooling measures. Given the geopolitical and economic uncertainties in other Asian countries, Singapore has emerged as their top investment destination. We are one of the earliest nations to transit smoothly into endemic living, which has boosted foreign investors' confidence.
Last quarter, the largest foreign buyers were from Mainland China, who purchased 342 non-landed homes, followed by buyers from Malaysia (218 units), India (123 units) and Indonesia (87 units).
Rental
The URA rental index of private residential properties reached a record high last quarter. Rents climbed faster by 6.7 per cent, after rising 4.2 per cent in the first quarter. This is the highest quarterly increase since Q4 2007 (6.8 per cent).
Rental volume slipped last quarter on the back of the escalating rents and depleting stock. According to URA Realis data, rental volumes excluding EC dipped 8.7 per cent from 22,719 units in Q1 2022 to 20,751 units in Q2 2022. The lease decline indicates that some market resistance could be setting in. For instance, some Malaysians have chosen not to renew their leases as travelling across the Causeway is now made possible. Some foreign expatriates have also returned to their home countries after our borders reopened. However, occupancy rates remain high at 94.6 per cent in Q2 2022.
More tenants are signing extended lease periods of at least two years to lock in the current rental rate as they anticipate that rents will rise further in the coming months. Others are accepting extended leases to secure units. Landlords are usually more receptive to rent negotiations and keener to take in tenants willing to sign longer leases.
As interest rates rise, some investors may increase their asking rents to cover the higher mortgage repayments. Others may pay off part of their financial obligations to offset their higher monthly instalment.
Outlook
Macroeconomic influences may play a more central role in determining housing demand and property prices in the second half of this year. Global inflation, interest rate hikes and supply chain disruptions arising from the Ukraine war and China lockdowns have already impacted global economies.
Mortgage rates here are creeping up from their rock-bottom levels as Singapore banks took their cue from the US Federal Reserve, raising rates to tame the hotter-than-expected inflation. Most existing homeowners should be able to service their home loans now. As the TDSR (Total Debt Servicing Ratio) threshold for property loans uses a stringent 3.5 per cent interest rate computation, there should be sufficient buffer for rates to move before monthly mortgage obligations exceed borrowers' gross monthly income.
Moreover, borrowers can apply for a floating rate package which is still below 2 per cent. However, should interest rates edge towards 3.5 per cent, the TDSR may be revised. The market impact will depend on how much the TDSR will be tightened should such a scenario happen.
Developers are now hard-pressed on many sides. They must grapple with higher construction and land costs and keep units affordable as interest rate hikes hamper buyers' affordability. Therefore, we may expect developers to exercise more caution in the upcoming land bids and acquisitions.
Amidst global headwinds, Singapore's robust economic growth and consistently high employment rate may help cushion homeowners from the impact of the global economic uncertainties. Moreover, investors flocking to traditional save havens to preserve their capital may still park their money here as our property investment market is considered one of the safest and most stable in the world.
We estimate that prices of new homes excluding ECs may rise by 6 to 8 per cent this year while around 8,000 to 9,000 units may be transacted. For the resale market, prices may increase by 6 to 8 per cent, and about 11,000 to 13,000 resale homes could be sold.