Granted, properties in Singapore don’t come cheap. But has property prices risen to the point where Singapore is considered one of the world’s least affordable housing markets. No.
According to Demographia, we’re not even in the notorious Top 10 of the least affordable housing markets in the world. That’s good news, isn’t it?
Densely populated Hong Kong has the highest property prices in the world
Hong Kong takes the top spot as being severely unaffordable and is the only Asian city on the list. Coming next in descending order are Sydney, Vancouver, San Jose, Melbourne, Honolulu, San Francisco, Auckland, Los Angeles, and Toronto.
So, why is Singapore property prices still considered affordable? In our opinion, much has to do with the relative affordability of public housing and the government’s ongoing efforts to cool the property market.
But why is Singapore still deemed as one of the priciest cities to own a property? From our perspective, there are three major contributing factors: geography, basic economics, and market forces. Let us now dwell on these in detail.
1. Land scarcity
At just 728.6 square kilometers, Singapore is one of the smallest countries in Asia. Yet with 7,053 people per sq km, we are the second most densely populated.
Over 80% of Singapore’s population lives in relatively affordable HDB flats in 2022
Although Singapore has managed its housing matters well, largely thanks to HDB, private properties here are still very expensive with an average price of $1,731 per sq ft for a condo unit now. This makes us the second most expensive housing market in Asia after Hong Kong.
2. High demand from foreigners
With its good governance, economic and political stability, well-developed legal and financial services, pro-investment policies, high educational standards, and safety, Singapore is a magnet for foreigners, be they students, working professionals, or entrepreneurs.
Many have gone on to put down roots here, and no doubt, raising a family here means these foreigners have to have a roof over their heads. While they would start off by renting from others, eventually many would prefer to have a place to their names.
In some instances, foreigners who buy properties here don’t even have any existing links to Singapore. These cash-rich individuals simply want somewhere safe to park their money, and in their eyes, Singapore is a safe haven for wealth preservation and wealth growth.
Those who know even the bare basics of economics will know that, this supply versus demand scenario will drive property prices up as demand is high but supply in land scarce Singapore is limited.
3. High demand from locals
Strong demand for residential properties here does not just come from foreigners, but also locals. Although Singaporeans and PRs have the advantage of buying relatively affordable public housing, a significant number of these HDB dwellers eventually choose to upgrade to private property.
Their reasons are varied. Some are attracted to the resort-like facilities of condo developments. Some prefer freehold properties, which they intend to bequeath to future generations. Yet again, some financially savvy ones want to invest in second or third homes for their resale value and rental potential.
Just like the above scenario where there’s demand from foreigners, demand from locals will similarly drive up property prices.
4. Labour crunch and rising costs
In the past two and half years when the Covid-19 pandemic became a global nightmare, causing borders to close and travel brought to a virtual standstill, Singapore developers faced a multitude of challenges. Chief of which is labour storage.
Singapore’s construction sector relies heavily on migrant labour from Bangladesh, India, and Myanmar
There were cases when entire dormitories of workers needed to be quarantined for days or even weeks at a stretch. This caused delays in construction. Labour cost escalated as developers scrambled to find replacement workers and, at times, developers had to pay additional taxes and levies too.
5. Rising building material costs
According to a Business Times report on 28 April 2022, prices of core construction materials will remain high in the next few quarters.
This is due to supply disruptions resulting from the Russia-Ukraine war as well as ongoing supply chain issues. Russia and Ukraine are key suppliers of steel and iron ore to the European Union.
Prices for building materials have been on the uptrend
Besides price increases for copper, steel, concrete, cement, and bricks, higher prices for diesel will also have adverse impact on the construction industry.
6. Higher home loan interest rates
Home loan rates in Singapore have been growing steadily since the fourth quarter of 2021. At that time, three-year fixed rates were only 1.15% but as recently as early July 2022, local lenders have announced rates that have surpassed 3%. This is according to a recent Straits Times report.
The culprit is the twin force of a current inflationary market and a looming recession. To mitigate this, the US Federal Reserve has so far raised rates three times this year, and in tandem, rates in Singapore are also rising. Higher mortgage rates will inadvertently cause property cost to rise as well.
7. Because people can still afford it!
The last reason for high residential prices in Singapore – believe or not – is because, despite all the challenges, house buyers here can still afford it and are ever eager to have a stake in the local property scene.
Just look at the number of HDB resale flats changing hands for over a million dollars, and the swarm of people attending new condo launches as proof that this indeed is true.
Singaporeans today are well educated and better skilled
Properties here are seen as an excellent asset class, which can not only preserve wealth, but multiply wealth. And as today’s Singaporeans are generally well educated and better skilled to take on higher-paying jobs, they will not hesitate to jump on the property ownership bandwagon.
As said, where there is rising demand and supply is limit, price hikes are inevitable.
In this article, we’ve outlined for you why residential property prices in Singapore is generally expensive. If you want to know more, schedule a visit with us or book a free consultation with our trusted and renowned representatives.
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