There have been talks that the recession is coming. Why are Singapore property prices still holding strong?

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By now, we are all aware of the huge economic consequences of the CoVid-19 pandemic around the world. With many people out of a job right now, and many stock prices plummeting, why is the property market in Singapore still going strong?

A Review of Singapore Property Prices in 2020

Usually, property prices in a country pretty much depend on the people’s demand for property. So when more people have the ability to buy property, property prices generally go up. And conversely, when fewer people can buy property, property prices go down. This is why a recession has the potential to impact property prices – with lower economic activity comes fewer people being able to afford houses, and so in some cases, a recession can cause property demand (and prices) to take a sudden dive.

Singapore’s economy definitely has not been immune to the after-effects of CoVid-19. Just recently, we learnt that Singapore’s Gross Domestic Product (GDP) went down in both the first and second quarters of this year. In theory, we would expect property prices to plummet at the same time, but instead, it has remained pretty stable – it only fell by 1 percent in the first quarter of 2020, and it actually grew by 0.3% in the second quarter, and 0.8% in the third quarter.

Credit: Singapore’s GDP in billion US dollars

Why have Singapore's Property Prices remained stable?

So how is this possible? Well, there are several factors that are active players in our economy right now, all of which could have contributed to this surprising trend:

  • Low Interest Rates for Housing Loans
  • Low Home Prices and Signs of Recovery
  • Aftermath of Circuit Breaker
  • Cooling Measures in Singapore
  • Overall confidence in Singapore’s property market

Low interest rates for housing loans

The Singapore Interbank Offered Rate (SIBOR) is the benchmark used in Singapore to determine the interest rates of bank loans. As you can see, the most recent 1 month SIBOR of September 2020 was at its lowest point in 5 years, at 0.25%! This low number is reflective of the Singapore economy’s contraction, but it also means that the liability linked to taking out housing loans is significantly reduced! Because of this, those who were looking to buy a new property in Singapore might have picked up on this situation and taken the opportunity to take housing loans at these low rates to buy private property in Singapore. And that could be a contributing factor to the stable property prices in Singapore, because of the increased demand for private property in Singapore.

Low home prices and signs of recovery

As we mentioned, private property prices in Singapore fell by 1 percent in the first quarter of 2020, and remained unchanged in the second (0.3% increase). Some people in Singapore were probably convinced by this trend to invest in Singapore property as quickly as they could! You see, the falling home prices in Q1 2020 makes buying a house more attractive, simply because it’s cheaper. But economically speaking, you would only want to buy a house at this moment if you thought prices weren’t going to fall further, right? Because why pay more right now when waiting would make the prices go down?

That’s where the Q2 percentage comes in. The slight increase in private property prices makes it seem like the property market is stable and recovering, so logically speaking, prices might actually increase from that point! And that thought can put some buyers in a bit of an urgency to buy new property at the low price, before it goes up again. And so the demand for private property goes up again.

Aftermath of Circuit Breaker

Most Singaporeans spent a lot of the 2nd quarter of 2020 at home when the circuit breaker measured came into play. At this time, home viewing and meeting people outside your household (like real estate agents) had to stop too, and home sales went down during this period. But there could still have been hidden demand, that is, people who wanted to buy private property in Singapore, but decided to hold it off until the circuit breaker measures eased up a little. So it wasn’t a surprise to many that there was another surge in demand after Singapore started opening up in Phase 2.

Overall Confidence in Singapore's Property Market

While we are definitely living in unprecedented times, recessions aren’t new to Singapore’s history. And in the past, the private property market has usually been one of the fastest markets to bounce back after economic downturns. To top it off, demand for rental properties doesn’t seem to have decreased so significantly even during this pandemic. All these factors mean that in general, confidence in the long term stability of Singapore’s private property market is high. So even with all the uncertainty that came from CoVid-19, many people were probably undeterred from investing in this time. The important thing here, though, is to think of buying property now as an investment in the long run, because even though the market is showing some promising signs of recovery already, it’s hard to say what the coming years will bring in the aftermath of CoVid-19.

Cooling Measures in Singapore

Possibly the most important factor in Singapore’s stable private property prices, though, may not be related to the CoVid-19 situation at all. Let’s go back to way before the crisis period this year, and look at the cooling measures that Singapore’s government has rolled out in the private property market over the past couple of decades. From the introduction of the Seller’s Stamp Duty to the different rounds of Additional Buyer Stamp Duty, the government’s measures were all put in place with the objective of preventing property prices from skyrocketing. They might not have been popular when they were first rolled out, but they probably did contribute to the stabilising of the property prices in Singapore, even amidst the CoVid-19 pandemic. You see, all these measures meant that when Singapore was hit by the CoVid-19 crisis, property prices were not high to the point they were disproportionate to our economic situation.  

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