Hi Friends! Do you feel that our salary has increased in tandem with the rising property prices recently? I was doing my research on the growth of Household income and realised that most household income in Singapore have fallen from year 2019 to 2020. Furthermore, when the Covid Pandemic hit us in 2020, all of us are feeling the pinch of inflation as things around us get more and more Dear.
We witnessed the introduction of the new Prime Location Housing (PLH) policies targeted towards the HDB market in Prime Areas like the recent Rochor November 2021 Launch, but what about General Property Prices? Will Singapore Property Prices reach a Higher Baseline faster than our Salary Increments? Here are my personal views.
Median Household Income to Consumer Price Index
Using the consumer price index as a gauge, we are used to general year on year inflation of 2.5%. The Consumer Price Index (CPI) is a measure of a basket. It includes consumption goods and services commonly used by resident households over a period of time like Housing and Utilities.
Majority of us are hopeful for property prices to drop. Although according to CPI, the Housing & Utilities under the basket has seen an increase in prices at 2.3% from 2020. Then what about our Salary?
In reference to the press release statistics on Key Household Income Trends in Feburary 2021. It was within expectations that among Resident Employed Households, the Median Household Income saw a drop of 2.4 per cent in real terms (including adjustment for inflation) in 2020 (Median Household Income Press Release Feb 2021).
As inflation approaches towards the end of 2021, if housing prices continue to rise and salaries are not accommodated, there will be more lower tiers of Resident Households. I strongly feel that it has become increasingly difficult for buyers as the gap of affordability and the prices of homes have widen. To a point that for some, it is a chasm too wide to cross.
New Government Land Sale Prices
Just look at the recent land bids, like the Ang Mo Kio Ave 1 GLS land plot. It attracted 15 developer bids, hotly contested and sold to UOL on 2 June 2021 for $381.4 mill. Their estimated breakeven after including construction and miscellaneous costs will come to be at $1,822 per square foot per plot ratio (psf ppr). Another example is the Lentor Central site, where it was sold at S$784.1 million or S$1,204 per square foot per plot ratio (psf ppr) to GLL D, an indirect subsidiary of GuocoLand. It is located next to the upcoming Lentor MRT Station along the Thomson-East Coast Line. The developers are clearly going to be pricing these new homes at an average of $2,000 per square foot per plot ratio (psf ppr).
From a new owner perspective, i will definitely want to command a higher per square foot to make a profit. Who doesn’t wish to earn from property right? In doing so, there is a high chance for a future new baseline of private property prices as continuing En-Blocs and Government Land Sales fetch a higher per square foot than our previous generations.
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New Government Land Sale Prices
Is it just a coincidence or am i just thinking too much? Did you notice that everytime before a General Election, there will be implementations of additional cooling measures? An example is the 2018 increase in Additional Buyer Stamp Duty, to curb the raising property prices in Singapore. Foreigners looking to purchase a private non-landed in Singapore are subjected to an increase from 15% to 20%. If we look closely at the history of Singapore Property Cooling Measures, it happens an average 2 years before the General Elections. Although, it is targeted at Singapore property price surges, i think that it is also a smart and political move to gain advantage. In a way, Singapore residents such as ourselves can feel assured that the government is looking out for the local community. What do you think? Leave down your comments below.
Supply and Demand
During the second half of 2021, the supply of private homes from confirmed sites under the Government Land Sales (GLS) programme has raised by 24.6 per cent or approx. 2,000 units. That is an increase from 1,605 units for the first half of 2021, likely due to the response of hungry developers in relation to the shortage of land supply in Singapore.
While this is a win for the second increase in the private home supply. According to a research article from the straits times, analysts called it a “conservative and measured programme given the macro-economic uncertainties amid the pandemic”.
We are still way far off from the previous 7,000-8,000 units that the Government released during the second half of 2010 and 2012 to return the property market back to balance after the global crisis.
With the above considerations taken into account and feedback from myself who is also a buyer in the market now. I feel that the private market is more inclined to form a new baseline of private home prices, although it may subject to certain locations due to continuing developments and amenities in Singapore. Whilst i personally feel that HDB resale market may still be regulated as it is an essential housing means for Singapore Residents. (It also plays a part in a political approach). That being said, if you are looking to buy a home amid the pandemic regardless of affordability or value preservation, resale homes can be attractive to us in certain ways due to immediate readiness or even the 1 km priority for our children. Parents out there like myself, who have young kids, i’m sure you will understand.
What about an investment approach? Resale private homes are priced way above than the 2018 high before the ABSD was increased (SRX Property Non-Landed Index). Be it new or resale, we should look at the Urban Revelopment Authority (URA)’s forward looking plans like the Master Plan on the project surroundings to future developments, lifestyle improvements or amenities, which can affect property value within the vicinity.
A reasonable per square foot entry and exit strategies are important to consider. It also varies from location to location in different parts of Singapore. This leads to deeper research on the surroundings of our potential investment property. What is the expected resale supply around my investment property within my exit timeline? Who are my neighbours and What were their entry prices and estimated exit per square foot? Is this investment property suited to my objective? (Objective is our life goal, timeline, type of investment approach like rental income or value appreciation)
Therefore, do work out your objective and plans carefully before making a home switch or property purchase decision. Explore all your housing options before commiting into the purchase. If you are still uncertain about what your objective and options are, feel free to contact me using the form below.