Hike fuelled by housing supply shortages, low interest rates, demand from HDB upgraders

Singapore home prices soared more than 10 per cent to a record high last year.

Housing supply shortages, the low interest-rate environment and rising demand from HDB upgraders fuelled a rally in home prices.

After new cooling measures were implemented in December last year, the property market started on a weaker footing, with lower sales clocked in the first quarter of this year. Based on URA's Q1 2022 real estate statistics, the overall price index for private homes grew at a slower pace of 0.7 per cent, down from the 5 per cent hike in the fourth quarter of 2021.

More Suburban Condo Units Are Sold At Premium Prices

New price levels seemed to be emerging in the suburban region. Prices of non-landed residential property in the Outside of Central Region (OCR) rose by 10 per cent year on year to a new high in Q1 this year.

New condo units in the OCR transacted at a median price of $1,314 psf in Q1 2017. In just five years, prices surged by 29.6 per cent to $1,703 psf in Q1 2022. The median price of resale condo units jumped by 32.1 per cent from $915 psf to $1,209 psf over the same period. Prices of private homes in OCR escalated as the supply of new homes in the suburbs has been declining steadily. Developers and resellers raised their asking prices, given the low housing inventory.

Many suburban condominiums hit $2,000 psf. A 580 sq ft apartment at Seaside Residences changed hands at an eye-popping $2,667 psf in April last year, the highest per square foot price for a condo unit in OCR.

Private homes that were transacted above $1,500 psf surged by more than four times in 2021 to 4,290 units compared with 1,068 units in 2017. Of this number, about 15 per cent or 643 units were sold for at least $1,800 psf last year.

More than 90 suburban condo units were sold above $2,000 psf last year, and this pricing is almost on a par with the median price of new luxury condo units five years ago. Most of the $2,000 psf units were small apartments below 800 sq ft at leasehold projects like Seaside Residences, Parc Clematis, Pasir Ris 8, and freehold projects like The Gazania, The Lilium, Ki Residences at Brookvale, Urban Treasures, Infini at East Coast and Seventy Saint Patrick's.

In terms of price quantum, more suburban condo units were sold at higher price tags. Around 1,200 condo units in OCR were sold for at least $2 million last year, and almost 50 units were above $3 million. The priciest suburban condo unit was a 363 sq m freehold at Grand Duchess at St Patrick's that was sold for a whopping $5.2 million in April last year.

New City Fringe Condominium Prices Reaching $3,000 psf

Around 2,800 condo units were sold for at least $2,000 psf in the Rest of Central Region (RCR) last year, with about 1,000 units crossing the $2,500 psf mark.

Some city fringe condo units have surpassed the $3,000 psf benchmark, with 165 such sales inked last year. Most of these condominiums were newly launched at Riviere, CanningHill Piers, Coastline Residences and Meyer Mansion, developed by renowned developers.

Buyers paid top dollar for these condo units for their unique attributes, distinctive designs and unrivalled location. For instance, Riviere and CanningHill Piers are sitting on prime land on the doorstep of the downtown core. Both projects boast stunning architecture flanked by a dual frontage of the iconic Singapore River and a panoramic city skyline.

The condo unit at Meyer Mansion in District 15 commanded premium pricing, comparable with many luxury properties. Moreover, finding a freehold property close to an upcoming MRT station that commands stunning unblocked sea views is rare.

Price Expectations May Shift In The Central-North Region

With many new homes sold above $1,800 psf in Potong Pasir two years ago, this price level was used as a benchmark for subsequent launches in other city fringe areas.

We anticipate that new price levels may be formed in the central-north region this year with the launch of two new condominiums. A private residential development with commercial space at Lentor Central by GuocoLand, and a private housing site at Ang Mo Kio Avenue 1 opposite the Bishan-Ang Mo Kio Park near Mayflower MRT station by a joint venture between UOL Group, Singapore Land Group and Kheng Leong Company could set price records in their locales based on the land prices and product attributes.

Both projects are expected to be launched at a median price of around $2,000 psf or higher.

The new price level may be fortified if a new condominium is launched at the site currently occupied by the Thomson View Condominium. Thomson View condominium is currently up for collective sales via public tender.

The new sales price is expected to surpass $2,000 psf when new condominiums are redeveloped and launched in the future.

Price Outlook

Inflationary pressures and supply chain disruptions caused by the war in Ukraine may have some impact on property prices. Last year, ample liquidity stemming from the massive stimulus packages launched around the world and rising demand from HDB upgraders bolstered home prices.

Moving forward, cost pressures may play a more significant role in determining the trajectory of future home prices in the coming months. Inflation and a higher cost of living may cause home prices to rise further. Therefore, the market could shift from a "demand-driven" price increase to a "cost-driven" price increase.

Over the next few months, property prices may continue to increase on rising costs. A snarled supply chain and shortage of building materials during the pandemic have already taken a heavy toll on the construction sector.

Escalating energy, steel, raw material and shipping costs arising from the war and trade sanctions may drive construction costs higher. Climbing land prices and wage rises may further affect the bottom line of companies. Some sellers may pass the additional costs to consumers, leading to higher home prices in the coming months.

To combat rising inflation, interest rates will be raised a few times this year. While higher mortgage rates may test the affordability threshold of some buyers, others may rush into the market to lock in home loans before they climb higher.

Looming uncertainties on the macroeconomic front may benefit the real estate market as investors shift their focus back to defensive asset classes like properties.

Others may also regard real estate as a good hedge against inflation as property values tend to appreciate over time.

The writer is the senior vice-president of OrangeTee & Tie Research & Analytics

Credit: Straits Times