Boom, gloom, but no doom
Singapore may have achieved the near-impossible: a soft landing for its property market after a breathless multi-year rise. Residential property prices have eased 7 percent from their September 2013 peak, after climbing 62 percent in four years.
It could get worse before it gets better, with a slowing economy and rising interest rates. A 3 percentage-point increase in mortgage rates would divert an extra 8 to 9 percent of household incomes to debt servicing, according to the central bank.
Supply and demand are still out of line too. More than 60,000 private homes are under construction or being planned, according to the Urban Redevelopment Authority. Meanwhile the take-up rate has crashed to roughly 6,000 houses a year, a 70 percent drop since 2012.
Demand is being held back partly by government diktat, and partly by affordability concerns. The cheap money era that lured households to overpriced, shoebox-sized apartments is ending. And affordability, measured as total wage income divided by interest costs on housing debt, is worsening. The average condominium price is about $950 per square foot, higher than in San Francisco.
All that said, government action is likely to keep a floor under prices. When property mania was at its peak, the authorities imposed harsh duties on buyers and tightened lending norms. Even partially reversing the measures would make it easier for first-time buyers and households trading up.
Immigration is also likely to stoke demand. The authorities have an ambitious plan to increase the population to almost 7 million by 2030, from 5.5 million now.
That is controversial but the government is also pouring money into infrastructure, hoping to ease voters’ concerns with overcrowding. This year, the government is investing S$20 billion ($14.5 billion), two-thirds more than five years ago. The annual outlay should hit S$30 billion by the end of the decade. Projects such as a huge new airport building will only increase the desirability of Singapore real estate.
Property markets the world over are more accustomed to boom and bust than gentle readjustment. But the International Monetary Fund is probably right when it calls this a successful “soft landing”.