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Just a few years ago, a four-room resale HDB in Punggol cost around $400-500k.

Right now, it is impossible to find one at that price range. Instead we find three-room resales within that price range!

Housing in Singapore has gotten more and more unaffordable these three years since the pandemic began with the resale price index not seeming to cool down much even after a slurry of cooling measures enforced by the government.

Are we then in a housing bubble? Will our housing market collapse from this unsustainable rise in prices within the next five years?

Let’s dig in.

Price-to-rent and price-to-income is still healthy

The price-to-rent and price-to-income are key metrics that tells us whether the property market is overstretched.

The reason why these two metrics are so important is the fact that it tells us if buyers are able to sustain their mortgages well enough.

They work like ‘bubble’ indicators for our residential property market.

We pay our mortgages with rental income (some of us) and income from work.

So, if property prices is rising much faster than rent and income, it is clear that buyers are buying out of FOMO attitude.

People are simply not making financially sound purchases and taking on too much leverage that they cannot sustain with rental money and their own income.

They lose all sense of their ‘financial soundness’ to jump on the hype train in fear of missing out.

That is when a property market bubble forms.

Unfortunately, we do not have these metrics readily available to us for Singapore’s property market.

So I made a comparison myself using median income data from MOM together with resale and rental price index data from SRX.

Rental prices have recently been fiercely chasing resale prices from 2022 to 2023 to close up the gap.

This shows that the rise in property prices is supported well with an even greater increase in rental prices.

However, we all know that rental prices right now are sky high and unsustainable in the long term if income does not catch up.

If rental prices start to stabilise and grow at a relatively similar rate with income, then future increases in property prices will remain sustainable from a rental perspective.

Since median income data is only available up till 2022, the graph does not include the 2023 data point which is critical since housing prices rose sharply from 2022 to 2023.

But it is fairly safe to say that housing prices is highly likely outpacing the increase in income just from the fact that many are choosing to wait on the sidelines instead of entering the market now.

That’s simply because they do not have the boost in income to encourage themselves to buy a property in today’s inflated prices.

Even so, the price-to-income graph is showing healthy growth in property price together with income over the last 10 years.

Any divergence between property prices and income should not have too large of an impact because of the steady historical growth of price together with income.

So on the broad picture, increases in property prices has been justified by rising income over the past few years.

Both price-to-rent and price-to-income graphs shows that our inflated property prices are well-supported with the increase of housing prices together with rental and income over the years.

Using just this data alone, it is safe to say that our housing market is not in a bubble and is not in danger of crashing.

Additionally, we have so many layers of cooling measures above the inflated prices.

If need be, the cooling measures can simply be removed layer by layer to help stimulate the property market passively without the need of other government stimulus.

So, as long as property prices continue to rise in tandem with rent and income, it is difficult to imagine our property market crashing within the next few years.

Special thanks to PropertyLimBrothers for the meticulous research done on this section. You can check out the full research on the metrics done by PropertyLimBrothers here.

A supply crunch might be looming ahead

Demand for residential properties has always been great in Singapore.

Residents buy HDBs for own-stay and upgrade to private to accommodate to family size or for investment.

Foreigners buy private properties here as a means to preserve their wealth.

It is not easy to erode the demand for properties in Singapore.

However, what about the supply?

The direction that housing supply goes will play a big factor in setting the tone for the residential property market for the next five years.

So, let’s see how the supply situation is looking for properties in Singapore. Will it go higher or lower?

BTO

For BTOs, HDB announced that they are prepared to release up to 100,000 BTO units for sale from 2021 to 2025.

In 2021, HDB released about 17,000 BTOs for sale.

In 2022 and 2023, it is about 23,000 per year.

Doing some simple math, 2024 and 2025 will each have approximately 18,500 BTO units in the pipeline to be released.

That is a 20% drop of BTO supply from 23,000 this year to 18,500 projected the next two years.

Resale HDB

Over on the HDB resale side, 25,000+ units MOP-ed in 2021 and 31,000+ in 2022.

For this year, it is only 15,000+; half the amount of resale supply coming into the market last year before recovering only slightly from 2024 onwards according to a study done by PropertyGuru.

From the chart above, we can also see that the predicted average amount of resale flats coming into the market in years to come looks to be significantly lesser than what had in the previous years since 2018.

What's more, resale property prices has been increasing without much of a break since 2018 even with larger-than-normal supply of resale flats.

If demand remains this strong, this can only mean that lower resale supply in the coming years means a higher potential of pushing resale property prices much, much higher.

Source: URA

Private

The private residential sector spells the most trouble with rapidly dwindling supply of private units and ECs entering the market from 2023 to 2026.

In 5 years’ time, the supply of private residential units would be slashed by half from what we are seeing today.

All three significant sources of housing supply analysed here are pointing towards the direction of a supply crunch in the coming years.

If demand does not change, the data here paints a picture of even more expensive homes that are more than justified for their prices.

The supply situation brings us to the opposite realm of a bullish Singaporean property market instead a crash some of us are expecting.

So should you hop on the train now?

Well that depends on you. But what matters when it comes to buying property as a homeowner for own stay is that you are confident you can sustain the mortgage without impinging on your own financial safety.

For investors, its a whole other story since you must look at other factors to maximise rentability and rental income.

I can’t say much about property investment since I’m not well read-up on the topic. I’ll leave that to the pros.

Summing up,

After going through key ‘bubble’ metrics such as price-to-rent and price-to-income, it is safe to say that our housing market is not as overstretched as some of us think. Chances of crashing within the next five years is low but not impossible.

Growth in property prices are justified as long as housing prices continue growing with rent and income.

Additionally, a supply crunch seems to be approaching within the next few years. This is another driver for homes to become more expensive in time to come.

It is up to you whether you want to hop on the train before prices go higher, but remember we cannot predict the future and this is just an educated guess on my part.

Instead, make your property purchase based on how comfortable you are paying for it. In the end, your safety comes first before anything else.

For your action

• Do not FOMO yourself into an impulse purchase. Gauge your level of financial safety first before buying a property at today’s inflated prices.

• Do more research for property investments to maximise rentability and rental income, do not only rely solely on the ‘bubble’ metrics.

Enjoyed the article? Check out more of my two-pointer articles to get your daily dose of personal finance knowledge in under five minutes here!

A big thank you to the following authors of contributing sources:

SRX - https://www.srx.com.sg/price-index#

MOM - https://stats.mom.gov.sg/Pages/Income-Summary-Table.aspx

PropertyLimBrothers - https://www.propertylimbrothers.com/is-a-housing-bubble-forming-a-study-on-u-s-amp-singapore/

Daniel Lee - https://www.askdaniel.org/2023/01/13/15000-mop-hdb-flats-coming-in-2023-how-will-this-supply-affect-price/

Michelle Ng - https://www.straitstimes.com/singapore/housing/up-to-23000-bto-flats-to-be-launched-a-year-over-the-next-two-years

PropertyGuru - https://www.propertyguru.com.sg/property-management-news/2020/1/185612/around-20000-hdb-units-annually-to-hit-mop-starting-2020

URA - https://www.ura.gov.sg/Corporate/Media-Room/Media-Releases/pr23-02#::text=Rentals of private residential properties,the 9.9%25 increase in 2021