In 2009, Singapore's fiscal policymakers launched a campaign to rein in speculation in the property market as home prices kept rising with interest rates remaining low, raising concerns of a housing bubble.
The loan framework introduced a few years ago reduced the ease with which people could obtain mortgages and it would appear that in the first quarter of 2014, the property market is now showing signs of a slowdown – good news for Singapore's Government.
In 2013, home prices increased by 1.1% which was lower than the 2.8% gain in 2012 and the smallest annual increase since 2008 when prices dropped by 4.7%. In February 2014, mortgage loan growth was at 9.4%, the slowest pace since July 2007 according to data compiled by Bloomberg.
Singapore's Housing and Development Board (HDB) house around 80% of the nation's population. The resale of public housing flats built and sold by the HDB fell 1.6% from Q4 2013 and prices for private homes – typically more expensive than HDB properties – declined by 1.3% in Q1 2014.
Although homes sales rose by 1.7% in February 2014 from last year, it is reported to be due to developers marketing new projects. Sales rose to 724 units compared with 712 in February 2013 according to Singapore's Urban Redevelopment Authority (URA).
Real estate experts predict that sales of new private homes could drop to between 11,000 and 13,000 units this year from 14,948 in 2013 as a result of rigid lending policy and falling average incomes. The other factor behind the slowdown is the relatively expensive price of Singapore real estate. In Knight Frank's 'Wealth Report' in March 2014, Singapore was shown to be the most expensive city to buy a luxury home in Asia after Hong Kong.
In the private property sector there is roughly 5 to 7 years of supply in the pipeline that will be coming on-stream in the next 5 years. A total of 83,702 units will become available versus an annual demand of around 11-15,000 units. This may seem to be enough supply to reduce house prices but in terms of the vacancy rate, there is still some way to go before vacancies reach anywhere near 8%.
The latest price drop is expected to set the tone for 2014. Experts believe that prices in prime areas could fall more than suburban areas as prime districts consist of primarily resale apartments and so there is no control over pricing in contrast with the suburbs where prices of new housing projects can be controlled by the developers.
Singapore has maintained its position as a financial hub in Asia despite the financial crisis. With state ownership prominent in strategic sectors of the economy such as housing, it has been relatively easy for the government to minimise the downside of the crisis by applying proactive austerity measures.
The economy of Singapore continues to be a major Foreign Direct Investment (FDI) outflow financier, also benefitting from the inward flow of FDI from global investors and institutions. The country will consistently attract foreign investment due to the country's extremely appealing investment climate and a stable political environment.
- Tuesday 13 May 2014