Updated: Jan 15
Hi folks, I'm finally back from my writing hiatus and I’m excited to share what I had been up to during these disappearing months.
Even since Phase 2 opened up I have been busy with viewings and consultations. In the last quarter of 2020, I saw prices in both the resale and new launch market going up. As an agent, it should be good news right?
Well, while it’s nice to see the real estate market picking up, a part of me was having a hard time digesting this rise. I share with some of my close friends that I cannot understand the rise in prices and I would correct myself, I understand why the prices will rise, I think I just cannot accept it.
As I felt we are still in the midst of a pandemic, the global economy is still suffering, there is constantly bad news surrounding us. However, the stats and trends have proven to be quite contrary to my feelings.
As I cast my doomsday feelings aside and study the figures and trends to address my cognitive dissonance I begin to make sense of the happenings, which became this post and hope it will be of value to you.
In an earlier post, I wrote about how Singapore Real Estate will remain resilient despite the storms, and I am quite glad that indeed the market remains stable despite a volatile economy.
If you are looking to enter the market or restructure your existing portfolio in 2021, I hope the following insights will help you to cut through the noise and navigate your purchase and selling in a steady manner.
In this post, I will cover the following
- What is the residential property market outlook for 2021?
- Who should enter the real estate market?
- Final thoughts
What is the Market Outlook for 2021
To look into 2021, we need to understand how historically, global events affected Singapore's real estate market and next make sense of what has happened in 2020 to understand what will likely unfold in 2021.
Quantitative Easing (QE) was first introduced in 2008 Global Financial Crisis as a stimulus for the economy. As part of the measures to support the economy in the midst of the Covid 19 pandemic many countries introduced various stimulus to the economy and for the United States, they once again deployed the QE to inject more money into the economy.
The graph below shows the relationship between the QE and the S&P500 (stock market index for top 500 companies in United States)
FED RESERVE VS S&P500
When there is an increase in money release into the market, there will be gains in the market. The QE has been used as a tool to stimulate markets.
What has this got to do with Singapore Property?
Singapore Property Price Index vs S&P 500
This graph shows an interesting relationship between the Singapore Property Index (SPI) and the S&P 500.
In Q42002, there was a gradual rally in the S&P500 and resulted in a bull run in the Singapore property market 7 quarters later in Q32004.
In Q42008, there was another bull run in the S&P500 and similarly, our SPI recovered in Q23009 about 2 quarters later.
Thereafter there seems to be some divergence in this relationship between 2013 to 2017, this is due to the Singapore government introducing several rounds of cooling measures to taper the fast growth in property prices.
Despite this, it’s still important to note how the S&P500 has an impact on the Singapore property market. The closing gap between these 2 trends at the current juncture is a good indicator of what is going to happen next in the Singapore Property Index.
Next, let’s look at how the QE affects property prices in Singapore.
Singapore Property prices Vs Money Supply
Global Financial Crisis Timeline
Flow of Funds
During the Global Financial Crisis, the Fed Reserve starting releasing money in the market which result in gains in the US stock Market is Q12009. Thereafter there is also a rebound in the Singapore stock market in Q12009. Which later led to a rebound in the Singapore real estate market.
After more money is released into the market in 2008, you can observe the rise in the Property Price index. Now let’s look at the money flow during the Covid-19 pandemic.
Increased Money Supply Injected into the Market
In just 6 months, more than 3 trillion dollars and counting have been printed in the US alone compared to $1 trillion over 30 months following the Global Financial Crisis.
This unprecedented injection of stimulus has created a large amount of cash to flow from the government to the market which has caused a rally in the S&P 500.
Money Supply flow during Covid 19
This time around, while it’s unlikely to see the same steep bull run that happened after the global financial crisis, due to the more complex nature of the impact caused by COVID 19 ( border restrictions, the resurgence of the outbreak, and localized lock downs still happening in different places) the gains from the stock market due to the increase in money supply will still find it’s way to go into safe-haven assets like real estate.
Hence a real estate rebound will likely take place from investors who reap gains in the markets and are looking to put their funds in real estate.
Early Signs from Latest Data
Price Growth in both Private Residential and HDB
A delayed effect from the increased housing grants can be observed in the last Quarter of 2020 where there is an acceleration in price growth in HDB prices. At the same time private property prices also climbed slightly.
A combination of high household net worth and low liabilities means many Singapore household holds good equity ie cash which places them in a good position to purchase private properties.
The Following 10 Factors will also contribute to inch the market upwards
1.Growth Outweighs Corrections
The Property price index has posted growth that is higher than previous correction which will introduce confidence to the market.
2. High Occupancy Rates
A high occupancy rate also implied there is lesser vacant unit where investors will be pressured to sell to cut loss due to lack of rental income. As such, there is no urgency to reduce prices to sell.
3.Higher Construction Cost
As noted by Minister Lawrence Wong that construction costs in Singapore will be higher due to regulatory requirements arising from COVID 19. Such an increase in cost will also have a push factor on future launches.
4.Low Interest Rates
Low interest rates will continue to encourage aggressive borrowing. This in turn will help property buyers see better returns in the home purchase due to cheaper loans.
5.Lesser Unsold Inventory For Developer Launches
Developer’s unsold supply is steadily decreasing. Some developers who adopted a loss leader strategy with lower prices have also started price increases. Total Present supply is estimated to sell our mid-2023-2024
Developers have also started to acquire more sites via en-bloc sale and government land tenders.
6.Enbloc Interest Reigniting
There are already collective sales in some parts of the East and also news on the ground of some projects already starting to set up en bloc committees.
7.Strong Interest by Developers At Recent Government Land Sales
Government land sales in Tanah Merah and Yishun draw strong interest from many developers who hold strong reserves. The Tanah Merah site drew bids from 17 developers!
8.Government Delaying Land Sales to Moderate Supply
At the same time, the government is delaying land sales to moderate the supply. This strategy will help to control the new launch supply which will help to moderate prices.
9. No Oversupply Issue
The dotted line represents the past 10 years average which is 13,855 units.
The Average supply per year over next 4 years is at 12,527 barring delayed completions
10. Rising Inflation
Jerome Powell announced a major policy shift to increase inflation. And being a major global economy, while the impact will not happen immediately, it will still signal rising inflation in developed economies that follows the US economy.
An excerpt of the MAS policy is also pointing to a slight increase in Core inflation in 2021. The twin factor of rising inflation and low-interest rate will make investment in real estate an important tool in hedging to prevent wealth erosion.
Who should enter the real estate market?
A K-SHAPED RECOVERY
We are starting to see a K-shape recovery in the market with some industries that did well and others more negatively affected. In my opinion, the following groups of people should enter the market as the current condition will be favorable for them.
1. Those in jobs that are stable and earns a good income
The low-interest rate environment has reduced the cost of borrowing, and this is a good time to buy into real estate as a good hedge against inflation, as savings in fixed deposit will not be able to beat inflation. Purchasing a unit to rent out will bring an even greater return on equity.
For those who’s BTO flat and EC has achieve MOP, now is a good time to sell as there are more demand for ready to stay homes due to construction delays from new home. This can be an opportune time to reinvest the gains from the sale of your first property into more assets that can work harder for you in the long run.
3. Condo owners whose property is in the 10th - 15 year mark
This can be an optimal time to sell and upgrade especially if you have used your CPF to finance the purchase of your property. It will be wise to sell your property at a profit and reinvest the funds to properties with better growth aspects before the accrued interest from CPF eats into your profits and results in a negative sale.
A Steady Mind
While all signs point to a recovery in the market, it will be wise to not act impulsively because of FOMO. When the market rebounds, it’s possible for prices to go up first or snap up first, to counter this sense of FOMO and make a sensible purchase, it’s important to set aside a clear budget and your absolute price ceiling when making your purchase.
Also as real estate is a long term investment, seeing the property with a minimum 10 year horizon will give you a better gauge of it’s value.
A Realistic Approach
A recovery in the real estate market will mean deploying different strategies in buying and selling. Not all areas have the same value, hence the gradient of price increase and growth will be different in different areas. Having a good understanding of the area will avoid missing on good buys, or selling at an opportune time.
In the weeks to come, I will be releasing writings on different segment focus to help home seekers/homeowners sharpen your acumen. If you are in the above 3 categories that I mentioned, this year will be exciting times for you.
A Hopeful Outlook
While the pandemic has created many disruptions and losses, it also provided an opportunity to pause and think more insightfully. Perhaps it’s time to review your life and look for the bright spots to have a more hopeful outlook.
I had a chat with a client recently. I asked her, how was 2020 for her, did the lockdowns and effects of the pandemic change her outlook in life. And she shared with me that she had to complete her MBA course entirely online and initially she thought that was something she can’t do as she struggle with learning on the screens and was concerned if she could made it.
But she managed to complete her course and did well. This episode helped her learn that she is able to do things that she was not able to do.
Likewise, I didn’t think I would be able to start a website writing blogs about real estate as I really dread writing essays back in school and is a highly private person (my ideal life would be to a hermit on an island), but I guess as I understood the value of how my sharing might be helpful for home seekers it compelled me to press on and continue writing.
Perhaps. it's time to be more hopeful and less fearful, press on and move step by step towards the things you need to accomplish that will bring you satisfaction.
May 2021 be a year of pleasant discovery for you in home purchase and life and find bright spots in dark places. Cheers!
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About The Author
Chantel Teo is fiercely loyal, insatiably curious and always hungry.
A licensed real estate broker based in Singapore. She has transacted properties with a combined value of more than $60 million, from Tanjong Pagar to Orchard to SengKang to Bukit Panjang. In the journey of helping her clients, buy, sell, lease and manage their properties, she has collected many stories and life lessons.
She writes as a form of catharsis and connection. Through her writing, she hopes to share practical and useful insights as well as stories that can enrich her readers.
Buildings and houses are her passion and she has a special love for walk-up apartments and buildings built before the 90s, probably because of the character, charm and history that comes with these buildings. Besides buildings that can stand the test of time, she also appreciates the cultivation of personal substance and character that endures.
One of her favorite quote goes
“Character, in the long run, is the decisive factor in the life of an individual and of nations alike” - Theodore Roosevelt. Her belief is that good character will be a solid foundation in which she builds her career and the people around her.
When she is not hustling at work, she enjoys nice coffee, hearty meals, long walks, and a good read. She also has a soft spot for all things furry.