Top 5 Vegetarian Restaurants in Singapore
Singapore, a melting pot of cultures and cuisines, offers a diverse range of dining options for food enthusiasts. For vegetarians,...
Read More
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 …
4 Intriguing Property Trends in Singapore for 2024
TLDR The dynamic shifts in Singapore's real estate market following Covid, highlighting three key trends: the surprising resilience of the...
Read More
The Unexpected Choices: Why Some Singaporean Homebuyers Opt for Smaller Condos (Even When They Could Afford More Space)
TLDR In Singapore's property market, buyers often prioritize factors beyond just size. Many choose smaller units within their budget due...
Read More
Top 5 : Potential Risks Should Be Considered When Investing Property Within Singapore’s Competitive Real Estate Markets
Singapore, a bustling financial hub in Southeast Asia, has seen its real estate market flourish over the years. The city-state's...
Read More
Bayshore: Reinventing the Experience of Living by the Beach
TLDR When deciding on buying or selling property in Bayshore, consider the recent developments and potential future growth. With a...
Read More
Buying a Mega Development Condo? Here are 5 Overlooked Issues You Should Know
TLDR In the world of mega-developments, living in a large condo with over 700 units can bring challenges like ongoing...
Read More
Top 5 Tips How to Find Your Dream Home in Singapore: A Step-by-Step Guide
Singapore, a vibrant and dynamic city-state, offers a diverse range of housing options for prospective homebuyers. From condominiums and HDB...
Read More
5 Reasons : Why Investing In Conservation Shophouses In Singapore Can Be A Unique Opportunity
Conservation shophouses are a unique and valuable investment opportunity in Singapore. These historic buildings are a key part of the...
Read More
Unveiling the Truth: Why Freehold is Not Always the Optimal Choice for Property Investment
TLDR When it comes to investing in real estate in Singapore, traditional beliefs may not always hold true in today's...
Read More
Top 5 Factors: Singapore Offer A Stable And Lucrative Investment Opportunity In Real Estate?
Singapore, a small yet economically powerful city-state, has long been recognized as one of the most attractive destinations for real...
Read More
6 Compelling Reasons Why 3-Bedroom Condos Might Shrink Further
TLDR Three-bedroom units in Singapore have significantly downsized from 1,700-1,800 sq. ft. in the 1980s to around 1,000 sq. ft....
Read More
The Emergence of Million-Dollar HDB Flats in Singapore: Could This Become the Standard Moving Forward?
TLDR Understanding the nuances of the HDB property market in Singapore, especially the trend of million-dollar flats, requires a deep...
Read More
What’s A Fair Price For An HDB Flat in 2025? A Savvy Buyer’s Guide
TLDR There’s no single “fair” price for HDB resale flats—what’s fair depends on your needs, motivation, and timing. To navigate...
Read More
Beyond Tenure: Why These Buyers Chose Older Leasehold Condos in Singapore
TLDR Older leasehold condos in Singapore may face skepticism but offer key benefits such as affordability, location, and flexibility. Three...
Read More
5 Things to do When You Go For A Property Viewing In Singapore
5 Things to do When You Go For A Property Viewing In Singapore Here are 5 things to keep in...
Read More
Selling Your Home for the First Time in Singapore: A Step-by-Step Guide
TLDR Selling your home in Singapore involves careful planning over several stages. Start 4-6 weeks before listing by consulting a...
Read More
Top 5 Best Secret Gardens in Singapore
Singapore, a bustling city-state known for its modern architecture and vibrant culture, is also home to a plethora of hidden...
Read More
6 Ultra-Private Condominiums in Singapore Offering Unparalleled Seclusion
TLDR This article highlights six luxury condominiums in Singapore that offer exceptional privacy by having no direct neighbors on the...
Read More
5 Things to Know About Singapore’s Freehold & Leasehold Properties
5 Things to Know About Singapore's Freehold & Leasehold Properties Here are 5 things you need to know about Singapore's...
Read More
Discover the Top 11 Most Outstanding Condominiums in Singapore’s Holland Village Areas
Originally established in the early 1900s by Singapore's Dutch community, Holland Village was originally a residential area home to British...
Read More
