How Would The 16 Dec 2021 Cooling Measure Impact Singapore's 2022 Property Market?
Updated: Oct 1
On 15 Dec 2021 (close to midnight), the Ministry of National Development released a set of cooling measures to cool the buoyant private residential and HDB resale markets, to promote continued housing affordability.
Many woke up to receive the news with shock. The lucky ones who bought their property just before the announcement heaved a huge sigh of relief. There is also a group of grumpy ones who are self-blaming themselves for missing the boat.
But most of them are wondering with abated breath about what the property market holds for them in 2022, and more importantly, will the property prices finally drop?
The set of announcement came at the time when the House Price-to-Income ratios remained below their historical averages, though there had been a clear upward momentum in the property market in the past quarters.
The main reason is to dampen demand, especially those who are purchasing property for investment rather than owner-occupation. It also aims to encourage greater financial prudence by reducing the Debt-to-Income ratio so that we are prepared for any further economic challenges that may arise from the unforeseen COVID pandemic.
What exactly are the cooling measures that were implemented? See below infographic.
So how would these measures impact the property market in 2022? Is the party over or is the DJ just slowing down on its tempo? According to NAVIS Research, the property market has ample steam for growth over the few years, and the following are the reasons for this thesis:
1. Shortage of Completed Supply Over The Next Few Years
Source: URA Q3 Report
The dotted line indicates the 10-year average annual supply at 14,090 units and it is evident that the number of completed homes in 2022 remains below the 10-year average supply. While there are more completed homes expected in 2023, the number dips again in 2024 and 2025.
On the average, the number of completed homes for the next 4.25 years is 12,247 which is still falls under the 10-year average supply mark. Overall, there is a shortfall of completed supply in the next few years due to the backlog of material and labour shortages as seen in the gaps indicated in red.
2. Supply of Unsold Residential Homes Remains Low
These measures were implemented at a time where the supply of unsold residential homes is 'running dangerously low'. At its current supply, the number of new private homes would probably last only for the next one to two years.
Source: URA Q3 Report
3. Low Number Of Launches In Coming Years
Almost back to back to the cooling measures, theGovernment also released 13 sites for sale at the first half 2022 Government Land Sale, but the number of new units remains relatively unchanged in 2022.
According to an 15 Dec 2021 article in Singapore Business Review on the PropertyGuru's annual Singapore Property Market Outlook 2022 report, it was reported that there would be only 11 new housing project anticipated in 2022. Out of these 11 projects, eight, including two executive condominiums, are located in the Outside Central Region (OCR).
Overall, 2022 - 2025 years are still facing a low supply of new launches and developers have ample time to sell-out their remaining inventory. As such, they are unlikely to give large discount or engage in price wars. This is especially when replenishing their land bank would costs them more now. As such, the major developers are likely to maintain or increase their profit margins for their present land bank to make the most of their current "lower cost inventory".
4. Rising Number of HDB Upgraders
There has been more HDB estates reaching the five-year Minimum Occupation Period (MOP) since 2019. In 2022 alone, there will be about 30,000 BTO households reaching MOP. While the loan quantum would be affected by the Total Debt Servicing Ratio's reduction to 55%, there will be a substantial pool of HDB upgraders with genuine demand to upgrade to new residential homes as part of their property wealth planning.
5. Interest Rate Hike May Start From 2H2022 But Still A Long Way From Its Highs
This chart below depicts the trend of Singapore's Singapore Average Overnight Interest Rate for the past 20 years. Even with the expected rising rates starting in the 2nd half of 2022, interests rates are still expected to remain low for some time to come. Its increase is likely to be gradual as the banks are moving towards using the Singapore Overnight Rate Average (SORA) as a rate benchmark in many of their mortgages.
For reference, during Global Financial Crisis period, it took 10 years for rates to return to 2%.
6. Imminent Return Of Foreign Investors
In a turbulent world roiled by uncertainties, Singapore is often seen as a safer investment destination, given its transparent laws, good infrastructure and political stability, as well as the strength of the Singapore dollar. With the opening of Vaccinated Travel Lanes, foreigner investors are likely to return to our shore after the pent-up drought in the last two years.
Furthermore, compared to other asset classes and the properties globally, SG properties are considered relatively reasonable. Also, many countries face equivalent or stiffer stamp duties than the current Singapore's tax regime now.
So What Can You Conclude From These Trends? How Would These Cooling Measures Impact The Singapore's 2022 Property Market?
Do you think that the property prices will nose-dive to a very attractive level? Or do these trends seem to paint the picture that the cooling measures are futile? Or can you see the window of opportunity ahead for buyers?
We have studied the impact of the past cooling measure on the Singapore's property market and it was never intended to clip the growth permanently.
Hint: The Government's ultimatum aim is continued housing affordability. What do you think is the best way to maintain affordability that is beneficial to a growing economy?
NAVIS Research has their conclusion and prediction about the overall impact on the property market. Want to check your guess against the NAVIS Research's findings? Make an appointment with me for a consultation and find out the answers.
ABOUT THE AUTHOR
Before the change to real estate, Pris Low was in the non-profit sector for close to 20 years, helping distressed consumers, disadvantaged families, children with special needs, persons with disability and frail seniors.
Now she finds it equally meaningful to be able to work directly with individuals, couples and families to plan their property path, find a right home within their comfortable finances and help them build resilient families that can flourish and overcome challenges.
Each property path is unique to the family, and there is no right and wrong path as long as it guides the family towards achieving their goals at its own pace.
You may hear many agents saying, 'Now is the best time to buy a property'. Pris Low believes that, 'Now is the best time to start your property planning'.
Every journey starts with a single step. Contact me for a non-obligatory chat!