The Big Read: Why are buyers still snapping up new condos at ever-rising prices despite property cooling measures, economic uncertainties?

SINGAPORE — Although Anthony and his family of six are now living in a freehold condominium around the Holland Road area, he is planning to buy a second private property.

He is eyeing a new three-bedroom unit at The Reserve Residences 99-year leasehold condominium development in Beauty World, with sizes ranging from 883 to 1,378 sq ft.

“I’m buying it for living-in. But also on the side, if there’s appreciation, why not?” said the 50-year-old, who spoke to TODAY at the project's sales showroom recently.

Anthony, who works in the IT industry and declined to give his full name, said that he does not intend to let go of his existing property even after buying a second condominium.

He is not deterred by the fact that he will have to fork out hundreds of thousands of dollars in tax due to raised additional buyer stamp duty (ABSD), following the latest round of cooling measures rolled out in late April. 

A person who buys a second property will have to pay 20 per cent in ABSD. A rough calculation based on the indicative per sq ft (psf) price starting from S$2,300 by the developer of The Reserve Residences puts a three-bedroom unit at more than S$2 million, which means the potential tax for Anthony would be at least S$400,000.  

He said that he “sees value” in the new development for the next 10 to 15 years, given that it offers attractive features, such as being part of an integrated development including retail space and a transport hub, as well as being located close to nature. 

At the same time, he would consider renting out his first property for additional income, he told TODAY.  

Anthony is among the many buyers who are prepared to pay more for newly-launched condominium units despite their ever-rising sale prices, high mortgage rates and a slowing economy. 

He explained that since yet-to-be-built properties — such as the one he intends to buy — will be paid for progressively, he would not feel the full weight of the prevailing mortgage rate on the entire loan up front.

While the latest cooling measures are targeted at foreign and investor buyers, who comprise about 10 per cent of the private residential property market, the Government has over the last 12 years or so introduced many rounds of measures targeting general buyers in a bid to ensure that the property market remains sound and does not run ahead of economic fundamentals. 

This was done through the tightening of loan rules, raising of ABSD as well as seller duty duties, which was aimed at discouraging speculation. 

However, prices for new condominium units have continued to climb, especially in non-central areas, outstripping household income growth. 

Even so, the response to recent condominium launches has been described by analysts as healthy and robust, with some projects selling more than half of their units over a weekend.

These include 99-year leasehold developments in non-prime areas that are selling for an average price of over S$2,400 psf, prices at a level unheard of until very recently.

With the jury still out on whether the market for new condominiums is frothy or fundamentally strong, TODAY takes a closer look at what fuels the demand for such properties despite the hefty price tags and uncertainties in the economy and what are the possible implications.

HOW PRICES HAVE SOARED

The overall private residential property market has been showing “strong price momentum”, several housing experts told TODAY. 

Real estate economist from the National University of Singapore (NUS) Sing Tien Foo noted how the Urban Redevelopment Authority (URA) private residential property price index had increased by nearly 40 per cent in five years from the last trough in the last quarter of 2017 to the first three months of this year.

“Most of the growth came in the last two years after easing of the Covid-19 measures,” said Professor Sing, who is provost’s chair professor at NUS' Department of Real Estate.

“The median non-landed housing price-to-income ratios have not increased significantly and were estimated at 12.4 and 12.7 in 2013 and 2023, respectively,” he said, referring to the overall non-landed private property market which comprises new launches and existing homes.

“Still, the high ratio of nearly 13 times income means that the median households will be priced out of the market.”

The URA divides areas in Singapore into 28 districts grouped in three regions: The core central region (CCR) such as Orchard Road and River Valley where most premium private properties are located; the less premium rest of central region (RCR) which includes Toa Payoh, Katong and Buona Vista; and the suburban or outside central region (OCR) where mass market condominiums are typically found.

For new launch condominiums specifically, data from real estate portal 99-SRX revealed that the price increase per square foot has been uneven across the three regions — though they all have outstripped median wage growth.

The average psf prices for CCR units have jumped by 41 per cent from S$2,142.29 in 2013 to S$3,020.99 in 2023.

Prices for RCR units have skyrocketed by almost 80 per cent from S$1,494.70 to S$2,681.62 psf over the same period.

OCR prices have soared almost 69 per cent from S$1,068.90 to S$1,805.79 psf, also over the same period.

Meanwhile, according to the Singapore Department of Statistics, median household income over a similar period had grown by 33 per cent from S$7,566 in 2012 to S$10,099 in 2022.

According to figures by URA and real estate agency Orange Tee and Tie, the median prices of new condominiums in the first quarter of this year is S$2,586 psf, up 30.5 per cent from the S$1,981 psf in the first quarter of 2022.

On the other hand, the median prices of resale condominiums went up by a slower 14.1 per cent from S$1,357 psf to S$1,547 psf over the same period.

Industry players and experts attribute the rising new launch prices to a slew of factors, including escalating costs of land, construction and labour.

THE APPEAL OF NEW LAUNCHES

Despite the soaring prices, new launch developments have seen strong interest among prospective buyers, experts noted.

The latest condominium to be put up for sale this year is the 732-unit The Reserve Residences at Jalan Anak Bukit launching on Saturday (May 27), the one which buyer Anthony is eyeing.

In a press statement on Saturday night, developer Far East Organization said that it has sold 486 units of 587 released, at an average price of S$2,450 psf.

This represents 83 per cent of the units launched and 66 per cent of all the units in the project slated for completion in 2028.

Far East Organization said that 99 per cent of buyers were Singaporeans and permanent residents.

"All the one-bedroom homes within The Reserve Residences have been sold," it added.

On the first weekend of May, joint developers Hoi Hup Realty and Sunway Property sold 216 or about 27 per cent of their freehold condominium project, The Continuum, located in Tanjong Katong. The average price of the units sold was S$2,732 psf.

Blossoms by the Park, a 99-year leasehold condominium near Buona Vista, sold 75 per cent of its 275 units at launch on April 28, at an average price of S$2,423 psf.

The project by EL Development was launched just two days after the latest round of cooling measures. 

Another 99-year leasehold project, Tembusu Grand, sold 340 of its 638 units over its opening weekend on April 8 and 9, at an average price of S$2,465 psf.

All four developments are located in the non-prime RCR.

Dr Lee Nai Jia, head of real estate data intelligence, digital and software solutions at PropertyGuru Group, said: “The response rate has been robust, despite the introduction of new cooling measures, increased interest rates, and an environment of rising prices amid external uncertainties.”

Similarly, Mr Alan Cheong, executive director for research and consultancy at Savills Singapore, said: “Despite the record prices being set, the response, at those prices, from an economist's perspective have been counter-intuitive.”

However, he added that the sales rate “has been generally within expectations” based on data forecasts. 

Mr Luqman Hakim, chief data and analytics officer at 99.co, described the take-up rate as “healthy” but expected.

Many factors contribute to the positive response towards these new condominium launches, said the experts.

Intangible factor

Sometimes, the attractiveness of a condominium unit can boil down to a buyer’s intangible preference, they said. 

“Firstly, people generally like new stuff if they can afford it. That's why the latest iPhone models, for example, always sell,” said Mr Silas Tan, a property agent with PropNex.

Agreeing, Mr Nicholas Mak, chief research officer at property platform Mogul.sg, pointed to how some people are willing to pay a premium for a first-hand car, when a two-year-old car of the same model can be bought at a relatively cheaper price.

Beyond the intangible appeal of being a first owner, new units are also typically in almost move-in condition — with little need for renovations, if at all, and occasionally partially furnished with appliances.

The convenience and small savings are welcome perks for buyers, said agents.

On the other hand, Ms Beatrice Ng, a property agent with ERA with 12 years’ experience, acknowledged some buyers’ preference for older condominiums as well.

“They feel like the psf price (for new units) is too high and they cannot digest, and they prefer a bigger space,” said Ms Ng. 

“I think their (buyer of resale units) ultimate aim is to settle down with a bigger unit and with their entire family and they are not using this for buying and flipping their property in the next five to 10 years.”

Financial advantage

On a pragmatic level, some buyers are drawn to new units because of the progressive payment scheme, which breaks down the payment requirements into phases based on the percentage of the development completed.

This makes it more attractive amid a high interest rate environment.

“The rising interest rates since 2022, which saw the current Singapore Overnight Rate Average (Sora) rate rising to about 3.58 per cent in April 2023, could adversely impact the liquidity in the market,” said Prof Sing of NUS, referring to the loan rates benchmark.

He contrasted this with how the Sora had stayed below 1 per cent from 2009 to 2021.

Mr Tan the property agent said: “Due to high interest rates for mortgage, by opting for a new launch, buyers are enjoying this progressive payment scheme which allows them to pay lesser bank interest as compared to experiencing the full blow of a resale property.”

Under this scheme, buyers are required to make monthly payments for only portions of the housing loan when certain construction milestones are met. 

For example, upon completion of foundation work, the buyer will begin paying monthly instalment for 10 per cent of the unit. After the next milestone of reinforced concrete framework is completed, the buyer will start paying instalments for an additional 10 per cent.

This allows buyers of new condominiums to stretch out initial payments over a couple of years.

In contrast, a person buying a resale condominium now would be charged the interest rate for the full amount of loan that they are taking. 
 

Knock-on effect from the public housing market

Mr Karamjit Singh, chief executive officer of real estate investment consultancy firm Delasa, said that the robust take-up of new units, particularly those in suburban locations, “is a reflection of strong demand mainly from Housing and Development Board (HDB) upgraders”.

“Heightened HDB resale prices help in realising the upgrade, which is also driven by a desire to step up their lifestyles,” he said. 

One such potential buyer is 37-year-old Jack, whom TODAY met at the Reserve Residences showroom recently. 

Currently reaching the minimum occupancy (MOP) period of his five-room Build-to-Order (BTO) flat in Jurong, Jack, who wants to be identified only by his first name, said the next step to upgrade is either by buying a flat in a better location or a private property.

“But a BTO at a Prime Location Public Housing site is so expensive, and comes with a longer MOP,” he said, adding that spending more for a condominium might offer better asset appreciation. 

Confidence in Singapore property market

One factor underpinning demand for private property in general is buyers’ confidence in Singapore’s real estate market, given the country’s overall stability.

Mr Mark Yip, chief executive officer of real estate agency Huttons Group, said: “The various cooling measures since 2009 have helped to maintain a stable and sustainable property market and that has given buyers the confidence to invest in properties.”

Industry players and analysts concur that despite going through some ups and downs, property prices in Singapore have been going up in the long term.

The fact that Singapore is land scarce suggests that land prices would likely continue to climb, said industry experts, reaffirming the general belief in the real estate market here.

“While the property market does experience its cycles, it is perceived as a safer long-term investment,” said Ms Shaw Lay See, chief operating officer for sales and leasing group at Far East Organization.

“Coupled with Singapore’s economic stability and strong fundamentals, planned population growth and land scarcity, it does explain homebuyers’ confidence in residential properties, auguring well for the property market.”

Fear of being further priced out

Closely tied to the belief that prices will keep climbing up is a fear of missing out, in the sense that undecided potential buyers worry that they would not be able to afford to buy a private property in the future.

“Fear of missing out is a major contributory factor as anxious buyers rush to market in anticipation of further cooling measures,” said Mr Devadas Krishnadas, director at consultancy firm Future Moves.

Some property agents said that they occasionally have such discussions with clients who are in two minds about buying a private property owing to the relatively steep prices.

“For example, five years ago they asked ‘Why is the property price so high? I think I still want to wait’. But five years later, they would feel ‘Oh no, this is out of reach’,” said Ms Jasmine Png, a real estate agent with ERA who has almost 20 years’ experience.

RISK OF A PROPERTY BUBBLE?

While industry players and analysts broadly agreed on the long-term upward trend of property prices here, some cautioned that the current bull market might not last forever.

After all, the market has seen slumps in the past which typically occurred on the heels of a recession. 

For example, the Asian Financial Crisis of July 1997 led to housing prices dipping by 40 per cent over 18 months, according to PropertyGuru.

In fact, many who bought private properties in the early to mid-1990s at rising prices then saw the value of their units drop or stay depressed for up to about a decade.

The dot.com stock market crash in 2000 and the September 11 terrorist attacks in 2001 as well as the severe acute respiratory syndrome outbreak in 2003 meant that market sentiments were poor for a prolonged period of time.

Following the Global Financial Crisis of 2008, housing prices here also dropped 25 per cent over a year before starting to recover.

Mr Devadas from Future Moves said that the private housing market is currently showing “signs of irrational price action that cannot be explained simply by supply and demand dynamics”.

“Sentiment is clearly running ahead of fundamentals and that is the definition of a bubble,” said Mr Devadas, who has 25 years of experience in the public and private sectors.

NUS’ Prof Sing and some other experts said it is generally hard to predict when a market is bubbling and about to burst.

“But prices have certainly reached a very high level, where continuous growth at the same rates will further inflate the bubble phenomenon,” he said.

“If left unchecked, the divergence in housing prices and the fundamental need to be carefully monitored and regulated could result in an undesirable outcome that could have an adverse socio-economic impact when price correction occurs, and more people find their asset values dissipate and their mortgages go underwater.”

It should be noted that even without a recession, profits are never guaranteed when one offloads a property.

For example, last month, one unit at Marina Collection in Sentosa Cove — a CCR district — was sold for S$4.65 million, about half its purchase price of S$9.30 million in 2008.

Meanwhile, a unit at Kingsford Waterbay located in the OCR area of Upper Serangoon, was sold for S$1.01 million. This is about S$139,000 lower than the purchase price of S$1.15 million in 2018.

Mr Christopher Gee, a senior research fellow and head of the governance and economy department at the Institute of Policy Studies, questioned the belief by some in making guaranteed money from the housing market.

“For people to believe that ‘you (can) just buy property, don't care, and you always won’t lose’; that, I don't think is a good signal for society,” he said.

Mr Gee questioned if a property “should even be considered an investment first before a shelter, before a roof over your head”, adding that the value of assets should be underpinned by some form of utility.

“For (prices) to keep rising for no other reason apart from the fact that people believe it's going to go up, that's speculation. And we shouldn't have that as a kind of normative assumption in our society,” he added.

SHOULD THE MARKET BE COOLED FURTHER?

Earlier this week, Mr Devadas took to professional online network LinkedIn to post some views about the property market and suggested that further steps be taken to cool it down.

One way is by further tightening buyer’s liquidity through the tightening of loan criteria and limiting the usage of the Central Provident Fund (CPF).

“As price side levies (such as the ABSD) have had demonstrably limited traction, liquidity restrictions are the more effective recourse,” he told TODAY.

Experts pointed out that the use of retirement saving accounts to fund property purchases is not unique to Singapore.

However, each country implements its retirement scheme differently and imposes different restrictions when it comes to using the funds to pay for property, so this would make it difficult to do a comparison.

However, specifically to Singapore, Mr Cheong of Savills noted that the use of CPF for property purchases has "greatly contributed to asset enhancement".

Restricting the use of CPF for private property purchases "would definitely be a negative" for the market, he said, adding that such "a major policy change could inadvertently trigger something unpredictable, for example asset deflation".

On the other hand, Prof Sing from NUS said that the use of CPF funds to buy second and more property investments could have negative implications.

These include aggravating the problems of (being) cash poor and asset rich and affecting one's retirement safety net, if property prices drop.

Other experts on the other hand, point out how effects from any cooling measures would take time to percolate through the market.

“Typically whenever government measures are announced, the private residential market goes through a period of pause while buyers and sellers adopt a wait-and-see approach to ascertain the impact of the measures,” said Mr Evan Chung, head of KF Property Network, Knight Frank Singapore. 

“This period of pause can range from one to two quarters, or to an extended period depending on the nature of the measures announced and other factors such as the prevailing supply of saleable inventory.”

Still, some expressed more optimism in the market.

“As it stands, the housing market in Singapore is not at risk of being bubbly. Cooling measures over the decade have ensured the housing market has remained grounded by fundamentals,” said Mr Singh.

“The way forward should not entail punishing buyers with more costs or governmental restrictions (through more cooling measures), but supplying more land especially in the suburban locations.” 

Mr Luqman from 99.co added: “(Policy tools) work in tandem to generally cool the markets which would otherwise have seen predatory lendings, high household debts and markedly steep increase of property prices at a short period of time that does not commensurate with income growth. All those are signs of a bubble.”

In order to cool prices for new condominiums, Mr Mak from Mogul.Sg suggested for the URA to tighten rules on unit sizes in new developments.

Currently, developers have been bumping up the psf prices to widen their profit margin. But to make the overall price of each unit still relatively affordable to buyers, developers have instead been shrinking the floor space of homes, he said. 

“If the authorities stipulate a certain size requirement, developers will not be able to raise the price per square feet that aggressively. This will almost overnight slow down the price growth,” said Mr Mak.

Currently, URA stipulates that each residential unit in all non-landed developments must be minimally 35sqm in size (377 sq ft) — about the size of a one-bedroom unit. 

Developments in the central area need to set aside a minimum of 20 per cent of units with a nett internal area of 70sqm.

Those outside the central area need to set aside a minimum of 20 per cent of units with nett internal area of at least 100sqm, and a maximum of 20 per cent of units with nett internal area of 50sqm or smaller.

This however still gives developers quite a bit of latitude to mix unit types and their respective floor area to maximise profit.

WORD OF CAUTION TO POTENTIAL BUYERS

Regardless of their views of the current market, all industry experts cautioned prospective buyers that all investments come with risks. And the property market is no exception.

Mr Luqman said: “While the market is expected to increase in price and hence (provide) investment returns in the long term, not all properties are profitable. 

“Beware of schemes that are overly optimistic on returns in real estate investments,” he said.

“Talk to multiple real estate agents and agency leaders to get different views and recommendations on property investments and finally do your own diligence and deliberate planning.”

Mr Mak and a few others also urged prospective buyers to exercise prudence and not overstretch their finances when making a purchase.

Mr Cheong of Savills posed three questions to those aspiring to buy a private property with the intention to invest.

He said: “Given the rapid pace of structural unemployment, do you think you will still have a job in five years’ time? Can you take the hassle of managing a tenant, especially nasty ones? Is this asset class the only way to invest in?”

CORRECTION:
An earlier version of this article said that Singapore’s median household income in 2012 was S$7,556. This is incorrect. It should be S$7,566. We are sorry for the error.