The Urban Redevelopment Authority (URA) has released its 2022 second quarter real estate statistics.
CCR = Core Central Region; RCR = Rest of Central Region; OCR = Outside of Central Region
As can be seen from the tables above, property prices and rents have risen in both the first and second quarters of 2022. However, the quantum of increase in the second quarter has surpassed that of the first quarter in most categories.
However, when you look at the chart above, you will notice that, ever since the second quarter of 2021, the number of launches has decreased significantly, so much so that take-up rate has surpassed the number of launches.
In fact, this has been the case for the past five quarters, which is a far cry from the earlier quarters when take-up rate was either on par or below the number of new launches.
Refer to the charts below that show Singapore’s stock of condos diminishing ever since the beginning of 2019 and the unsold stock steadily declining for the past five quarters.
Demand exceeding supply
When you have a situation like we’re in right now with demand far exceeding supply, you will most certainly see a spike in property prices and rents.
But why is this happening? Hasn’t the government just introduced property-cooling measures in December 2021? Didn’t that help to somewhat temper the market? Yes, it did, to a certain degree.
According to a CNBC report in February 2022, Singapore property prices are set to keep climbing in 2022, but at a slower pace. Back in 2021, private home prices rose by an eye-watering 10.6%, but in 2022, prices are expected to rise between 1% and 4% only.
What caused this?
There are several reasons for the current climate of low supply versus high demand.
Covid-19 affected the property market in more ways than one
Firstly, the Covid-19 pandemic along with its lockdowns and border closures in 2020 and 2021 caused a manpower crunch in the local construction industry. Supply of properties was adversely affected because developers fell behind on their timelines and were unable to be as aggressive in pushing out new products.
The pandemic also caused global supply chains to be disrupted, and as a result, prices of building materials and, in tandem, property prices shot up.
In response to the pandemic, the US Federal Reserve slashed interest rates to near zero in 2020 and 2021. Many central banks around the world followed suit. In Singapore, low interest home loan rates fuelled interest towards property ownership during those two years. Hence the pent-up demand for property.
Home loan interest rates are on the rise, but so is demand
Fast-forward to today and the world is facing yet another set of challenges. In reverse to what it did in the past two years, this year the US Fed has been upping interest rates in a bid to curb escalating domestic inflation, and again, the world’s central banks are following suit. As a result, home loan interest rates have been on the rise in Singapore. Logically, this would have dampened buyer sentiments. But, in reality, the opposite is happening.
This is because, the man on the street is feeling the urgency for stability, no thanks to the uncertainty in the world economy roiled by the Russia-Ukraine conflict, and a looming recession.
With Singapore’s political and economic stability, both local and foreign investors are flocking here to park their extra cash into real estate, which is traditionally seen as a very safe asset class.
Now, let’s put our focus on local property developers. They see continued demand for properties, and they know that higher taxes and raw material prices are on the cards. They would be subject to higher levies too should they exceed the maximum 5-year period to build and sell all units in a development.
All these do not give them any incentive to lower prices. Hence, property prices and rents are currently riding high.
In this article, we’ve outlined for you why low supply and high demand have caused property prices and rents to go up. 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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