Your search results

Are We Truly Headed For A Slowdown? How Will This Affect Property Prices?

Posted by Jayson Ang on December 9, 2022

| 0

TLDR

The pandemic-induced recession has surprisingly boosted property prices in Singapore, defying conventional economic trends. Factors like cost-push inflation, limited housing supply, and excess liquidity in the market are driving prices up. Despite predictions of a looming recession, property prices are expected to continue rising due to these intertwined factors.

Recent news paints a grim picture of the current state of the global economy; Covid-19 is still rampant, monkeypox has entered the picture, a war is waging between Russia and Ukraine, energy crisis is looming, and food and oil prices have been rising. To make matters worse, predictions about an upcoming recession in the U.S. have been circulating, with the potential to have far-reaching implications that extend beyond the US borders and onto other countries, similar to the Covid-19 pandemic. It’s clear that the global economy is far from healthy.

The US Consumer Price Index (CPI) soared to an astonishing 9.1% in June 2022 – the biggest jump since November 1981 – indicative of the rampant inflation that is ravaging the country. The US Federal Reserve has adopted an aggressive policy to combat the situation by increasing interest rates, but if it’s not managed properly, it could lead to a sharp decline in economic activity and a possible recession.

Bank of America economists are predicting that a mild recession may occur during the remainder of 2022, leaving Singapore in a situation of uncertainty as to whether it too shall experience the same economic darkness.

What does Recession Mean?

The Global Financial Crisis of 2008, a result of a plunge in housing prices and a financial crisis in the U.S, triggered the Great Recession, which had a rippling effect on economies worldwide. In Singapore, the Urban Redevelopment Authority (URA) Housing Index recorded a 8 percent drop in housing prices over a period of six months – a clear indication of a recession, which is defined as a sustained reduction in a country’s Gross Domestic Product (GDP).

Considering the close correlation between the housing market and the economy, it is foreseeable that a recession will have a significant influence on the real estate sector.

What Impact will the Recession have on the Singaporean Property Market?

The 2020 pandemic recession brought an interesting turn of events – instead of property prices plummeting, as would typically occur during an economic downturn, prices instead rose! Financial instability, job losses, and a higher rate of unemployment were all hallmarks of the recession, yet people seemed more willing to purchase a house than before, creating a higher demand and consequently, a rise in value.

The COVID-19 pandemic has resulted in an unexpected boom in the property markets across the globe – with Singapore experiencing a dip in private home prices but quickly recovering, even growing 2.2 percent last year! Demonstrating remarkable resilience in the face of the recession, this boom has been observed in stark contrast to the Global Financial Crisis of 2008, where the housing market was one of the main variables causing the downfall.

It is evident that each recession is distinct in terms of its nature and variables, thus resulting in varying impacts on the property market.

Property Prices Expected to Rise

According to the Straits Times and CNA, private home prices rose 3.5 percent in the second quarter of 2022, which was an impressive five times more than the 0.7 percent increase from the previous quarter. Despite the looming recession, property prices are likely to keep going up – but why? Let’s take a closer look at the current circumstances and variables.

#1 Cost-Push Inflation. What is Cost-Push Inflation?

Have you observed that prices for goods and services have gone up in recent years? Remember when chicken rice became more expensive due to the increase in chicken prices? That is cost-push inflation at work! Production costs – such as raw materials, transportation and wages – can rise, causing prices to increase for the same goods and services. So, if the cost of labour and/or raw materials soar, you as a consumer have to pay more for the same items.

The ever-increasing cost of oil due to the Russian-Ukraine war has had a trickle-down effect, resulting in an increase in petrol prices. This cost-push inflation, which is driven by higher production costs, is something the world has seen become more and more prevalent, including in the property market. The pandemic has only exacerbated the situation, with supply chain disruptions driving up the price of essential raw materials for building, particularly steel, which skyrocketed in 2021, consequently raising construction costs.

Singapore’s already pricey land costs due to scarcity, paired with increased production costs, spell even more trouble for developers who, in order to maintain their margins, will inevitably pass on the costs to those hoping to buy a home – a direct cause of skyrocketing property prices, despite an impending recession.

#2 Limited Supply of Homes

The property market’s current demand-pull inflation has come as a surprise, as nobody could have predicted the immense demand for flats during the COVID-19 pandemic. With supply struggling to keep up with the relentless demand, prices have soared due to this cost-push inflation. In response, cooling measures such as the higher Additional Buyer’s Stamp Duty (ABSD) rate have been implemented to dissuade foreigners and developers from buying properties; yet the demand persists.

The ever-increasing demand for housing due to the influx of first-time buyers and those looking to upgrade their HDBs has been met with an alarmingly low supply, pushing property prices to an all-time high.

The Government Land Sales (GLS) Programme had brought a sense of moderation to the land supply over the two years preceding the Covid-19 pandemic, which, combined with the surging demand for housing, caused a notable dip in land availability. Though ChannelNewsAsia reported the HDB’s plans of introducing up to 23,000 new Build-to-Order (BTO) flats annually for the next two years, it is important to remember that the effects of this increase in supply will not be seen immediately.

The Covid-19 pandemic has disrupted the supply chain of housing projects and caused delays in construction progress. This has resulted in a major decrease in the housing supply which, in turn, has caused property prices to skyrocket.

#3 Very High Liquidity in the Market

To combat the adverse effects of the pandemic and the resulting monetary inflation, the U.S. implemented a dual approach of both monetary and fiscal policies, injecting a whopping $5 trillion into the economy to increase the money supply and help offset the imbalance between production and circulation of funds.

If the money supply in an economy is increased from $500 to $1000, while the amount of apples stays the same at 500, the value of money has decreased, meaning you now need double the amount of money to purchase the same amount of apples as before: two apples previously could have been bought for $2, but now you can only purchase one.

With the money supply raised during the pandemic, the United States is feeling the pinch of inflation just like many other countries across the world. Despite the Monetary Authority Singapore’s attempt to strengthen the Singaporean currency, the forex markets remain turbulent and it remains to be seen if our currency will appreciate or depreciate in the near future.

In addition, the vast wealth of the market has attracted a huge influx of high-net-worth individuals to Singapore. This is evident in the remarkable growth of local family offices – in fact, 2020 saw the establishment of a staggering 400 family offices in Singapore.

As Hong Kong is experiencing uncertainty by the global community, savvy businesspeople, investors and expats are turning their attention to Singapore, recognising its unique position as an Asian-Pacific gateway and financial hub. These investors are bringing funds and investments to Singapore, creating an influx of money and demand – driving up property prices despite the recent rise in interest rates.

In today’s economy, it’s obvious that the relationship between cost-push inflation, Singapore’s scarce housing inventory, and the oversupply of money in the market is highly intertwined. This means that a reduction in property prices in the near future is highly improbable.

You May Also Like …

All Blog Posts Buying Tips

3 Trends For New Launch Properties In 2023

Jayson Ang – March 20, 2023

TLDR When considering buying or selling a property in Singapore, it's crucial to understand the market dynamics and key metrics....

All Buying Tips Selling Tips

Discovering the Response of Private Property Owners towards the 15-Month Wait-Out Phase

Jayson Ang – August 25, 2023

TLDR The blog post discusses the impact of the 15-month wait-out period cooling measure on private property owners in Singapore....

Mandarin Top 5

Top 5 Reasons : Why Investing in Singapore’s Property Market Is a Smart Move for Expats – Expert Analysis!

Jayson Ang – February 7, 2025

Singapore, a thriving city-state in Southeast Asia, has long been a popular destination for expatriates seeking new opportunities and a...

All Blog Posts Buying Tips

Uncover the Secrets of Buying Older Properties – What They Won’t Tell You!

Jayson Ang – December 30, 2022

TLDR When considering the appeal of older properties in hipster neighborhoods in Singapore, it's crucial to understand the benefits and...

All Opinion Selling Tips

Why Selling Your Own HDB Flat May Be More Challenging Than You Anticipate: 7 Hidden Challenges to Prepare For

Jayson Ang – January 29, 2025

TLDR Selling your flat can be a daunting task, not because of the paperwork but due to challenges in marketing...

All Blog Posts Opinion Selling Tips

When Should You Consider Lowering the Price of Your Property That Has Been on the Market for Months?

Jayson Ang – December 3, 2024

TLDR Selling a property can be challenging without the right price strategy. Adjust your asking price to attract more buyers...

Mandarin Top 5

5 Reasons : Why Investing In Singapore’s Property Market Can Be A Good Retirement Plan

Jayson Ang – June 22, 2024

Investing in Singapore's property market can be a good retirement plan for several reasons. Here are five key factors that...

All Opinion

The 99-to-1 Property Split Strategy: Legality and Risks

Jayson Ang – May 15, 2026

TLDR The 99-to-1 property ownership split in Singapore, where one spouse holds 99% and the other 1%, is used to...

All Buying Tips Opinion

New Condo Sales Surge: Decoding Singaporeans’ Enthusiasm Despite “High” Prices

Jayson Ang – January 14, 2026

TLDR Recent strong condo sales in Singapore, including Emerald of Katong’s 99% take-up during launch, challenge perceptions of unaffordability. Key...

All Buying Tips Opinion

Why One Family Chose a New Launch 4-Bedroom Unit at Lentor Mansion Over a Resale Condo

Jayson Ang – March 18, 2026

TLDR NM’s family chose to buy a 4-bedroom unit at the new launch Lentor Mansion despite elevated condo prices, after...

All Buying Tips

Uncovering Hidden Details: Key Questions to Ask at a New Launch Condo Show Flat

Jayson Ang – January 2, 2026

TLDR Show flats can be impressive but may hide important details. Buyers should ask about room sizes, furniture fit, balcony...

All Buying Tips

3 Steps to Prevent Rental Scams

Jayson Ang – January 23, 2024

TLDR: Prevent Rental Scams in Real Estate Scammers are targeting prospective tenants by impersonating Real Estate Salespersons (RES) to deceive...

All Buying Tips Opinion Selling Tips

5 Untold Risks Of Buying An Old Freehold Condo In Singapore

Jayson Ang – October 1, 2025

TLDR Old freehold condos in Singapore may seem attractive due to lower prices, but they come with hidden pitfalls. Longstanding...

All Buying Tips

A Comprehensive Guide for Buying Landed Real Estate in Singapore

Jayson Ang – February 26, 2024

TLDR When it comes to buying landed property in Singapore, there are three main types: terrace houses, semi-detached homes, and...

All Buying Tips Reports

2024 Residential Property Market Outlook

Jayson Ang – December 22, 2023

TLDR The market outlook for 2024 suggests continued uncertainties affecting housing demand and risk appetite due to geopolitical tensions, macroeconomic...