Making Sense of 99-Year Landed Home Investments in Singapore
TLDR Investing in a 99-year leasehold landed property in Singapore can be a lucrative venture due to the country's land...
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2022 sure was a rollercoaster ride for the property market, and the world! From war in Europe to skyrocketing interest rates, and even cooling measures; it’s likely there will still be some road bumps along the way in 2023. Nevertheless, there’s always a bright side! So, what will property buyers (and sellers) like or dislike about the upcoming year? Let’s find out!
Resale Flat Buyers May Benefit From Moderated Prices
As a result of the September 2022 cooling measures, there is a mandatory waiting period for those disposing of private property before they can purchase a resale flat. This waiting period is 15 months, with some exceptions. For those looking to buy a BTO flat, it is already a requirement to wait 30 months after selling a private property before applying.
Before the cooling measure was implemented, there was a high number of flat transactions for properties worth $1 million or more. This was due to individuals, known as right-sizers, selling their properties at a market peak and having the financial means to pay the Cash Over Valuation (COV) or premium on executive flats, maisonettes, DBSS units, etc.
However, with the introduction of the waiting period and other cooling measures such as higher Minimum Sum Required (MSR) and Total Debt Servicing Ratio (TDSR) floor rates, as well as an increase in BTO supply in 2023, resale flat prices may decrease.
Read moreGreat Reasons for Condo Owners to Sell upon Reaching TOP – A Guide to Sub-Sale Transactions
It is currently unclear how many people will be affected by the waiting period, so it is difficult to accurately gauge its impact. There is an exception for Singaporean citizens aged 55 or older who are purchasing a resale flat with four rooms or fewer.
Good Rental Prospects Will Continue From 2022
According to reports, 2023 is expected to be a good year for landlords due to a number of factors. The main reason is the decrease in the impact of COVID-19 and the return of foreign workers, including those holding S-Pass visas (who typically rent flats) and E-Pass visas (who typically rent condos).
There is also a higher quota for S-Pass visas, although this only applies to a small percentage of registered businesses. Additionally, landlords are experiencing stronger demand from local tenants due to an increase in housing transaction volumes, with some people seeking temporary accommodation while their new homes are being built and others needing their own space for remote work.
This may lead to fewer vacancies from landlords and higher rental rates for tenants. Landlords may also see a slightly smaller impact from the rise in home loan rates, as the interest portion of their mortgages can be claimed as a tax deduction.
However, the number of new launches coming on the market in 2023 may also have an effect on the rental market.
There Will Be A Continued Increase In The Supply Of BTO Units
Anticipating the high demand for flats, the Housing and Development Board (HDB) is ready to launch up to 100,000 flats between 2021 and 2025 if necessary.
In 2023, an extra 23,000 flats are expected to be released, with 2,900 to 3,900 of those being located in Kallang, Queenstown, Whampoa, and Tengah. While these newly released flats may not immediately meet the demand for resale properties, they signify that the shortage of flats won’t persist forever.
The ABSD Deadline Is Quickly Approaching For Certain Condos
En-bloc redevelopments, some dating back to 2017, are entering the last stage of their five-year cycle, with 2022 being the final year for developers to move and sell their remaining units. As ABSD deadlines draw closer, developers will be eager to offload units, sometimes resulting in lower-priced units for later buyers. I have identified 66 potential developments that are approaching their ABSD deadlines.
Real Estate analysts suggested that, given the new cooling measures and mounting worries of home loan rates, developers might begrudgingly have to lower prices in later phases.
The Recent Cooling Measures May Spark A Reaction That Will Benefit Potential Buyers
In the past, home buyers have usually taken a ‘wait-and-see’ approach when it comes to cooling measures, making sure to avoid purchasing a property just prior to potential plunges in house values. If this trend continues, it could mean great news for home buyers in 2022, as they won’t have to suffer through the constant rise in private property prices – while they may still go up, the speed of increase could be much slower.
The difference between the current cooling measures and those imposed in the past is that there is a significant housing shortage in 2023; in late 2022, the number of unsold residential properties was the lowest it had been in 15 years. This limited supply might be the factor that keeps prices afloat, which leads us to ponder…
The Tide Shifts, Ushering In A More Buyer-Favorable Environment
It proved to be a hard decision to make, transitioning from a seller’s market to a buyer’s market. We can’t expect the shift to happen overnight, as the high prices sellers have been asking will take time to be reduced.
The high-interest rate market and increasing BTO supply may present a challenge for rental seekers in the upcoming year, but fear not! 2023 will see a massive influx of newly-completed projects for those in search of a place to call home. We can expect some of the biggest 2019-2020 launches to be finished and ready for sale by then.
What Challenges Lie Ahead for the 2023 Real Estate Market?
Interest Rates Are On The Rise
Come 2023, the Singaporean property market may experience a seismic shift, with interest rates unlikely to remain as low as in the past decade. Since the Global Financial Crisis of 2008/9, home loan rates have generally hovered around two percent or lower – far lower than the guaranteed CPF rate. The prospect of pricier home loans and higher stamp duties could potentially make property investment less attractive, if not outright prohibitive due to the higher rates that may make it more difficult for many to qualify for home loans without a much bigger cash outlay.
High-interest rates are of great concern for developers, with two consequences: developers must consider if their project can be sold within five years, even with buyers being burdened by higher interest and loan restrictions; this could be the reason why we have not yet witnessed any “en-bloc fever” to replenish the dwindling land banks of developers.
Financing for developers is the second factor, and higher loan rates mean it’s pricier for them to borrow. Property development tends to involve a lot of upfront costs and leveraging, so these expenses may be passed on to buyers eventually.
Higher GST
With GST increasing to 8% on the 1st of January 2023, and then again by 1% in 2024, it’s important to remember that GST for property agent services still applies – not just for the residential property market, but also for commercial. Even though the commercial property sector has been spared from the ABSD, a one percent increase may still cause some investors to pause and reconsider their decision – an outcome that nobody is particularly fond of.
Fewer New Launches Than Anticipated
Due to decreasing inventory and growing demand, realtors have predicted the number of new launches for 2023 will be more moderate than in recent years. Approximating at 40 new projects, including two Executive Condominiums, this year’s largest launch will be a single 1000+ unit project in Dunman Road.
The pipeline of large-scale housing projects with 700+ units has drastically dwindled to a mere three – The Continuum, The Reserve Residences, and a site at Marina View. All in all, we are expecting about 11,000 new housing units – a huge contrast from past years when the development of huge projects such as Treasure at Tampines, Normanton Park, and Parc Clematis. Alas, we are in dire need of such major projects now more than ever!
The Soaring Costs Of New Property Launches May Even Be Too High For Hdb Upgraders
2023 could be the year when the prices of properties could finally stabilize, with September cooling measures and loan rate hikes taking effect. However, new launches are unlikely to experience a major dip in prices, as the cost of Land Betterment Charges, ABSD, are preventing developers from having any room to reduce their margins and offer discounts.
The repercussions of Covid had increase construction costs; rather than reverting back to pre-pandemic levels, the market has adapted to the higher price point, which consequently shrank developer margins. As of 2022, $2,000 per square foot is considered the norm for even suburban condos, leaving many HDB upgraders unable to keep up. The upcoming Seneca Residence could be one of the last remaining properties to offer prices below the $2,000 psf threshold in the foreseeable future.
The Repercussions Of The European Conflict Have Yet To Be Completely Realized
Though it may be too soon to say there are no repercussions from the Russia-Ukraine crisis, wintertime is the pivotal moment for the EU. If energy costs rise, developers and other companies alike will be put in a financial bind. This will lead to logistical issues (e.g. more expensive transportation of materials, higher priced imports, etc.), leaving developers with a tough decision as they plan for the next twelve months. This may be seen in the pricing of their upcoming launches, which could have a significant impact on purchasers.
An Influx Of Foreign High-Net-Worth Individuals Is On The Horizon
Depending on your point of view, this could be perceived as a positive development; as we explore the rise of the centi-millionaire, highlighting the surge in family offices, along with the consistent stability of the Singapore property market, as some of the factors that have attracted the ultra-wealthy to Singapore.
Coming out of the Covid-19 pandemic, we’re now having to face the music of geopolitical uncertainty from China and Taiwan. 2023 is easily the most unsettling year we’ve encountered, leaving buyers and sellers in an anxious and hazy situation. Nevertheless, we should pay attention to what’s certain:
In the US, rates have already been hiked aggressively, and these are projected to go up even further by 2023, provided inflation stays at a high rate. To stay safe in the near future, it’s wise to be judicious in purchases and not be drawn in by any urgent claims that “the cost may be more in the next month”, and so on.
It’s important to base your buying or selling decisions on your financial reality rather than on your perception of the market.
To ensure you stay informed of all the latest trends, follow me on my blog. I’ll be providing you with thorough evaluations of both new and pre-owned properties, so you can make wise choices in an unpredictable market.
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