Singapore: house prices rising strongly, but challenging year awaits
Lalaine C. Delmendo | April 17, 2019
The private residential property index rose by 7.86% during 2018, a sharp improvement from meagre growth of 1.09% in 2017, according to the Urban Redevelopment Authority (URA). When adjusted for inflation, house prices rose by 7.32% y-o-y last year.During the latest quarter (i.e. q-o-q in Q4 2018), residential property prices were almost unchanged.
All regions saw rising house prices:
- In Core Central Region (CCR), prices of non-landed private residential properties rose by 6.7% (6.2% inflation-adjusted) during 2018, according to URA. However, prices dropped 1% (-0.9% inflation-adjusted) during the latest quarter.
- In the Rest of Central Region (RCR), property prices were up by 7.4% (6.9% inflation-adjusted) during 2018. Quarter-on-quarter, prices increased 1.8% (1.9% inflation-adjusted) in Q4 2018.
- In Outside Central Region (OCR), property prices rose by 9.4% (8.8% inflation-adjusted) during 2018. During the latest quarter, prices increased 0.7% (0.8% inflation-adjusted).
Housing sales down last year, but from a record high
Home sales, including new sales, sub-sales and resales, fell by 11.5% in 2018 to 22,139 units, according to URA. Despite this, it was the second highest sales level recorded since 2013.
“Although latent demand is strong, the cooling measures have moderated the rate of sales and developers must now price with finesse according to their projects' attributes,” said Alan Cheong of Savills Research.
Residential construction is rising strongly. In 2018, there were 8,769 uncompleted private residential units launched in Singapore, up from 6,020 units in 2017, and 7,877 units in 2016, according to URA.
With new market-cooling measures, demand is expected to be subdued this year while house prices are projected to either increase slightly or remain steady. An economic slowdown caused by the US-China trade war is also expected to adversely affect the housing market.
“Private property prices are now a lot more expensive, which has turned away some buyers,” said Chris Koh of property firm Chris Koh International. “We could see private home prices increase by 2% to 3% in 2019, which means only an increase of 0.1% to 0.5% per quarter,” Koh added.
Singapore's economy grew by 1.9% in Q4 2018, the lowest y-o-y growth since Q4 2015, mainly due to a decline in the manufacturing and exports sector amidst the US-China trade war, according to the Ministry of Trade and Industry (MTI). Overall, the economy expanded by 3.2% in 2018, a slight moderation from the 3.9% growth in 2017. The economy is expected to expand by less than 2.5% this year.
Foreigners have been able to buy any apartment without prior government approval since the Residential Property Act of July 19, 2005. However, foreigners still cannot purchase vacant land and landed properties without permission from the Singapore Land Authority. Non-residential property is not subject to these ownership restrictions.
Analysis
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You wouldn't own a Singapore condominium for rental yields!
Singapore is a safe haven, it is a liquid market, everyone in Asia knows and trusts its institutions. Low interest rates have played their part in pushing property prices up, despite the efforts of the ever-vigilant Monetary Authority of Singapore and the government. Property in Singapore commands a premium, and conversely returns to owners who rent out their properties are low.
Nobody can say that condos in Singapore are cheap, at around US$14,000 - US$18,000 per square metre (sq. m.). That´s because there´s a ´global city´ premium. Gross rental yields in Singapore remain poor, at around 3.0%.
Round trip transaction costs are very low in Singapore. See our Property transaction costs analysis for Singapore and Property transaction costs in Japan, compared to the rest of Asia.
Rental income tax in Singapore is high
Rental Income: Net rental income earned by nonresidents is taxed at 22%. Property tax, insurance, maintenance and repairs are all deductible from gross rental income.
Property Tax: Property tax is levied at a flat rate of 10% for rental properties. Foreigners pay a 10% surcharge.
Capital Gains: There is no capital gains tax.
Inheritance: There is no estate duty as of 15 February 2008.
Residents: Residents are taxed on their income at progressive rates, ranging from 2% to 22%.
Roundtrip buying costs in Singapore can reach 34.45%
The total roundtrip costs are about 13.45% to 34.45%. The buyer pays stamp duty at around 1% to 3%. The buyer may pay additional stamp duty of 5% to 15. Because Singapore uses a common database of all property listings, there is no sense in hiring more than one agent. To register the property, there are four procedures, typically done in six days.
Singapore favours landlords
With the passage of the Control of Rent (Abolition) Act in 2001, the law in Singapore became clearly pro-landlord.
Rents: The parties can freely determine the rent and the rate of rent increase. Tenants usually pay a security deposit of one month’s rent for every year of lease.
Dispute Resolution: Most landlord and tenant disputes are resolved through mediation or Alternative Dispute Resolution, usually through groups such as the Consumer Association of Singapore (CASE) and Singapore Mediation Center (SMC).
Economic slowdown, falling unemployment
Singapore’s economy grew by 1.9% in Q4 2018 from the same period last year, the lowest y-o-y growth since Q4 2015, mainly due to a decline in manufacturing and exports sector, amidst the US-China trade war, according to the Ministry of Trade and Industry (MTI). Overall, the economy expanded by 3.2% in 2018, a slight moderation from the 3.9% growth in 2017.
The economy is expected to expand below 2.5% this year.
Unemployment stood at 2.1% in 2018, down from 2.2% the previous year, according to the Ministry of Manpower (MOM). Unemployment among Singaporeans was 3% in 2018, down from 3.3% a year earlier. Retrenchments fell to 10,730 in 2018, from 14,720 in the previous year.
Inflation was 0.4% in January 2019, from 0.5% in December 2018 and 0.3% in November 2018, according to Statistics Singapore. Recently, MTI and MAS issued a joint statement revising down their 2019 inflation forecast from 1%-2% to 0.5%-1.5%, amidst a decline in global oil prices.
In October 2018, the country’s central bank, the Monetary Authority of Singapore (MAS), tightened its monetary policy – the first time in six years. This is consistent with a gradual appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band to ensure medium-term price stability, said the central bank.
The average exchange rate in February 2019 was USD1 = SGD1.3537, a slight appreciation from USD1 = SGD1.4138 two years ago.
“Overall, against a backdrop of cooling economic momentum with the risks tilted to the downside, we believe there will be little impetus for further tightening in 2019,” said Sian Fenner of Oxford Economics.