Where is the Singapore Property Market at in the Real Estate Cycle?

Understanding the real estate cycle, which consists of four different phases: recovery, expansion, hyper supply, and recession, can help investors to identify which phase is the market at and deploy appropriate strategies in their property investment game plan.

Let us look at the following indicators in today’s Singapore property market:

1. Economic sentiment remains high as Singapore’s 2021 economic growth could exceed forecast of 4% to 6%.
2. Interest rate is expected to remain low which will continue to spur home financing and housing demand.
3. Buyer confidence is accelerating as we have seen record HDB resale transaction at S$1.295 million or S$1,002psf, new launch in Pasir Ris with 85% of its units sold up to S$2,000psf etc.
4. Absorption rates are increasing, as developers sold 6,459 units or 1,077 units per month in 1H2021, the highest half-yearly sales since 2013.

5. Supply of unsold units is decreasing to a record low of 19,409 units as of 2Q2021.

Source: The Business Times

In addition, the government land sale (GLS) tender bids and results reflect the market sentiments through the perspective of property developers.

The highest bid for the Lentor Central GLS is at $1,204 psf per plot ratio (psf ppr), which is 7.7% higher than the winning bid of $1,118 psf ppr for the Ang Mo Kio Avenue GLS tender which closed in May 2021.

If you have noticed the tendered sale prices based on psf prr, the top 3 bids are all higher than the winning bid for the Ang Mo Kio Avenue GLS tender and launch prices for Lentor is expected to be at an average of $2,000 psf onwards.

On the other hand, the tender for the executive condominium (EC) site at Tampines Street 62 is hotly contested as the differential between the top two bids stands at just 1.4%.

With the top land rate of $659 psf ppr, it has broken the previous record land rate of $603 psf ppr for an EC site in Tengah Garden Walk. This means that we will see future EC launch prices to be at an average of $1,200 psf.

These bids directly reflect developer’s confidence in the outside central region (OCR) or suburban market, given that recent successful launches are mainly targeting the mass market due to rising affluence and pent-up demand from HDB upgraders.

Source: CNA

Furthermore, if we look at HDB resale flat prices, they have been on the rise for 12 straight months with a 13.2% year-on-year increase.

The HDB resale price index for the second quarter of this year 2021 at 146.4, which is getting close to the peak 8 years ago at 149.4 in the second quarter of 2013.

The fundamental reason why HDB resale market is going on an extended bull run in today's environment is largely due to the delay in HDB Build-to-Order (BTO) completion time as its longer waiting time can take up as long as 6 to 7 years.

In addition, the high application rates as seen over the past few HDB BTO exercises may lead to some unsuccessful applicants turn to the resale market.

This forces young Singaporeans to enter the HDB resale market or turn to purchasing private residential such as smaller condominums in surban areas, which may potentially overstretch their finances and cash flow.

In conclusion, we are definitely in the expansionary phase and in my opinion, we will continue to experience this extended bull run at least till the end of this year 2021.

This is because apart from the strong indicators listed above, real estate is a lagged market as it takes time to react from the increase in government’s land supply by almost 25% to 2,000 private residential units (including 375 EC units) for 2H2021. There are even calls from market watchers that this increase in land supply is not sufficient to meet the increasing market demand.

However, do note that real estate is cyclical in nature as the market can go up, but will come down eventually. The question is how long this bull market will last.

Be heedful my friends!