SINGAPORE (EDGEPROP) - The residential market ran full steam ahead in 2021 in spite of the pandemic, with prices escalating in the second half of 2021. URA real estate statistics of 4Q2021 show private home prices shooting up 10.6%, outstripping the overall 2.2% increase for residential properties as a whole.

The transaction volume of private homes also went up significantly.  Developers sold 13,027 private residential units in 2021, compared to 9,982 units in 2020. There were also 19,962 resales and 568 sub-sales in 2021, respectively higher than the 10,729 resales and 198 sub-sales in 2020.

The HDB resale market was equally buoyant last year. The Resale Price Index registered a 12.7% increase for the whole of 2021, the highest annual increase since the 14.1% growth in 2010. A total of 31,017 HDB flats changed hands, 25.3% higher than in 2020. A record number of million-dollar HDB-flat transactions were also inked in 2021. (Find HDB flats for rent or sale with our Singapore HDB directory)

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Due to concerns over the surge in home sales and prices running ahead of economic fundamentals, the government implemented a set of measures to cool the private and public housing markets. Taking effect from 16 Dec 2021, Additional Buyer’s Stamp Duty (ABSD) was raised by 5% to 10%, and the Total Debt Servicing Ratio (TDSR) was lowered from 60% to 55% to prevent households from becoming overleveraged. The government also tightened the Loan-to-Value (LTV) limit for HDB loans from 90% to 85%, while increasing public and private housing supply to cater to demand.

With the cooling measures, how will the buying sentiments be impacted?

According to the Property Ownership Aspirations Survey* jointly conducted by EdgeProp Singapore and NUS Institute of Real Estate and Urban Studies (NUS IREUS), close to half the respondents surveyed would purchase a property in 2022.

The Property Ownership Aspirations Survey 2021/2022 was conducted over the one-month period from the last week of December 2021 to the last week of January 2022, in order to accurately capture the respondents’ reactions to the cooling measures. A total of 1,148 responses from a good mix of respondents across different age groups and economic profiles were collected.

Sentiments softened in 2021/2022 compared to a year ago when a similar survey conducted in 2020/2021 showed that 53.2% of the respondents were then seeking to purchase a home in 2021. The latest round of cooling measures had apparently triggered a 4 percentage point drop.

In contrast, following the July 2018 cooling measures, respondents seeking new homes in 2019 were markedly lower (43.1%), down 12.5 percentage points from 55.6% the previous year.

That does not mean the 2021 cooling measures were not effective: Close to half the respondents who had no intention of buying a property in the next 12 months, said they would have been on the hunt if not for the property cooling measures. They made up about 25% of the respondents. (Check all latest Singapore property Market Trends)

This means that, if not for the cooling measures, about 74% of all the respondents would have sought to purchase a new residence in 2022. Of those who have decided not to purchase a new home, the higher ABSD rates were cited as having a large impact on their decision (Figure 2).

Separately, more respondents indicated that the increase in housing supply had little impact on their decision not to purchase a new home.

This is not surprising since buyers who want to purchase in the year ahead will not be able to wait for the new housing supply to enter the market.

Those in the HDB market had indicated that the tightening of the LTV for HDB loans had little impact on their decision to purchase too. The tightening of the LTV for HDB loans only impacts certain segments of buyers and does not affect those who are looking for private residential property.

Why are people still looking to buy?

Respondents who continue to pursue a new property this year despite the cooling measures — representing about half of the entire pool of respondents — were either unaffected by the measures or had lowered their expectations. About 35% in this “buying group” indicated that the measures had no impact. Buyers who are moving for occupation or purchasing their first property are least affected by the measures. Another group of respondents, comprising about 43% of the buying group, indicated that they would have to lower their budgets and adjust their expectations.

Motivations for buying a new residential property were primarily future capital gains and acquiring more space. About 37% of the buying group stated that their main motivation for buying a house in the next 12 months is the need for more space. Another 31% were looking for capital gains when they sell their homes in the future. (Check all latest property transactions in Singapore)

With the ongoing inflation, some buyers may still purchase properties despite the hefty ABSD because they perceive residential real estate as a good hedge against the depreciation of money.

Impact of cooling measures on property and locational attributes

Concerning property and locational attributes, we observed that average scores have mostly risen across the board for both HDB flats and private condominiums (Figures 5 and 6).

One possible hypothesis for the higher scores across attributes could be due to the higher acquisition costs of homes, made more expensive with the cooling measures. Buyers may become more cost-conscious as they adjust their expectations.

Buyers seeking HDB flats continue to rank accessibility and space very highly (See Figure 5). Proximity to MRT stations remains a priority.  Being close to upcoming areas, the city and established primary schools rank lower in priority. Among the attributes, what has moved up in importance is being within walking distance to national parks. (Find HDB flats for rent or sale with our Singapore HDB directory)

Due to the pandemic, more people are likely to place greater emphasis on well-being for themselves and their family members. Being close to national parks allow them to exercise more frequently and these are ideal avenues for family members to engage one another.

Like the ranking of priorities for HDB flats, most prospective buyers of private homes are seeking accessibility and layout (Figure 6). Interestingly, having a spacious and functional layout is ranked higher than being within walking distance to current or future MRT stations, and could be because this market segment is more likely to drive.

Second, the ranking for reputable developers is placed higher than facilities, view and tenure of property but remain lower than unit layout, size of master bedroom and accessibility to MRT stations and shopping amenities.

Interestingly, whether buildings are designed by celebrity architects was tangential to their reason to purchase. Buyers are more likely to associate the product with the developer, which might enjoy high brand recognition in the local property market, but not the architect, whom they may be unfamiliar with.

Would Residential Property lose its appeal?

Despite the cooling measures, about 27% of the respondents expect prices to remain stable, while another 28% of respondents expect prices to go up by 1% to 3% in the next 12 months.

The confidence in price appreciation receives support from expectations of a strong rental market and a recovery in the global economy. More than 57% of the respondents expect rents to go up, and about 62.7% of the respondents expect the global economy to expand in 2022.

While the Government is concerned about the impact of inflation on the real estate market, the respondents maintained their assessment of the risk of residential properties as an asset class. In both the 2020/2021 and 2021/2022 surveys, the average score for the level of riskiness to purchase property is about 4.3. The higher the score, the greater the risk to purchasing a property, based on a seven-point scale.

While the economy remains uncertain, the results suggest that there are proportionately more buyers who believe that the residential market remains positive, and that the risk level remains unchanged. It is possible that buyers continue to expect residential properties to remain a good hedge against inflation and geopolitical risks.

*The Property Ownership Aspirations Survey 2021/2022 measures Singapore’s residential market prospects, based on the potential behaviour of homebuyers in Singapore. The survey was conducted by EdgeProp Singapore and the Institute of Real Estate and Urban Studies at the National University of Singapore (NUS IREUS) in the late-Dec 2021 to late-Jan 2022 period, with 1,148 respondents. The responses were analysed by NUS IREUS.

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