House buying activity in the Year of the Ox

By Lee Nai Jia,

NUS IREUS

/ EdgeProp Singapore |

February 4, 2021 6:30 AM SGT

SINGAPORE (EDGEPROP) - Singapore’s housing market has started 2021 on a bullish streak. Based on the Property Ownership Aspirations Survey 2020–2021, conducted jointly by EdgeProp Singapore and Institute of Real Estate and Urban Studies at the National University of Singapore, 53% of respondents have indicated that they are looking to buy a residential property in the next 12 months (See Figure 1). The survey was conducted in December with 1,408 respondents.

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The survey results showed that investment was a main motivation for many considering a home purchase this year, with 64% of these respondents buying in anticipation of future capital gain or rental income (Photo: Samuel Isaac Chua/EdgeProp Singapore)

The proportion of respondents looking to buy a home in the next 12 months is higher than the previous year, when only 34.4% of respondents said they were considering a home purchase in 2020.

Home buying interest has increased despite the uncertain economic outlook in 2021 due to the Covid-19 pandemic. In the 2019-2020 survey, about 43% of the respondents expected home prices to decline, with 16% expecting the decline to be more than 3% in 2020.

In the recent 2020–2021 survey, only 36.4% of respondents expected home prices to weaken this year, with only 10% expecting prices to correct by more than 3%. The Covid-19 vaccination rollout and Phase Three reopening of the economy had boosted sentiment and optimism of a recovery ahead.

While overall home buying sentiments have improved, the hike in additional buyer’s stamp duty (ABSD) continues to derail some home buyers’ aspirations. Of the respondents who indicated that they had no intention of buying a home this year, about 31.9% cited higher transaction cost due to ABSD as the main stumbling block. Other reasons include financial constraints (29.7%), having already purchased a property in the last 12 months (19%) and expectation of price decline (19%).

Source: EdgeProp Singapore and Institute of Real Estate and Urban Studies, National University of Singapore (NUS IREUS)

Reasons for optimism

The survey results showed that investment was a main motivation for 45% of respondents considering a home purchase this year. Of these, 64% were buying in anticipation of future capital gain or rental income (See Figure 2).

Source: EdgeProp Singapore and NUS IREUS

Two out of three who expressed an intention to purchase a new home this year, have no plans to sell an existing residential property within the next 12 months. Over 50% of the respondents own their current dwelling. This further suggests that a significant proportion of these would-be buyers are looking for an investment property as they are likely to keep their existing dwelling.

If the above is true, it is a strong indicator of investor and home buyer optimism in both the Singapore economy and the residential property market.

Read more: Global sentiments for real estate appear less pessimistic: Savills

The “net balance percentage” approach shows a positive net 14% balance for the Singapore economy. This means that more consumers expect the Singapore economy to expand rather than contract in 2021 (Figure 3).

Source: EdgeProp Singapore and NUS IREUS

The perceived relative strength of the local economy also gives rise to investor confidence in Singapore’s private residential property market. First, there were proportionately more respondents expecting an increase in price in the next 12 months at the end of 2020 compared to the expectation of 2020 at the end of 2019.

For 2020-2021, close to 64% of all the respondents expected prices will remain stable or increase. Among the respondents who are looking to purchase in 2021, those seeking landed property were the most optimistic about prices increasing. A net balance of 11.6% of landed home seekers said they expected home prices to appreciate further in 2021.

Understandably, the expected buying activity is being driven by young families with relatively strong purchasing power and those employed in sectors that are less affected by the pandemic. The potential buyers in the survey have an average age between 35 and 45; disproportionately holding managerial and professional occupations (67%) in sectors such as finance, business services and information technology; and with median household incomes between $8,001 and $12,000.

Most of them are married (74%) with two or three children. Figures 4 and 5 depict the age and income distributions of the respondents.

Source: EdgeProp Singapore and NUS IREUS

Fewer motivated sellers

While our survey results imply that there will be more buyers in the market in 2021, the survey suggests that there are fewer owners looking to sell their homes in the resale market.

About 69.1% of the respondents with at least one property are not seeking to sell in 2021. The primary reasons for not selling include a much longer investment horizon (27.2%) and low offer prices (10.7%).

With the uncertain outlook, we expect owners to be cautious and resist selling at lower prices. Consistent with the buyer sentiments, the survey suggests that property as a proportion of the overall investment portfolio of these investors is unlikely to change, given that around 60% of the respondents have indicated that they are not expecting to change their allocation of wealth to cash or commodities this year.

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The sales momentum in the Singapore residential market in 2020 is likely to extend well into 2021, supported by buyers’ optimism in the recovery of the economy and strong confidence in the long term capital returns of the real estate market (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Some of the potential sellers intend to sell in order to move to a new home due to lifestyle changes. Close to 75% of the respondents who want to sell in 2021 were staying in their family home. If the pool of private homes in the resale market shrinks, demand is likely to swing to developers’ new project launches.

Consistent with the sample distribution of primary residence, most of the potential sellers intend to sell private condominiums (49%) or public flats (37%).

Based on the responses, we anticipate the resale stock to be highest in the Central region, followed by the Northeast and East regions respectively. This appears consistent with buyers’ preferences from the survey: the top three regions favoured by potential buyers are Central, East and Northeast respectively. It is possible that sellers are encouraged by buyers’ demand.

As the stock of private homes in the resale market is likely to contract in the next 12 months, prices are likely to increase. However, external shocks and policy risks could moderate sentiments.

Lee Nai Jia is Deputy Director, Institute of Real Estate and Urban Studies at National University of Singapore (NUS IREUS)

Note: The Property Ownership Aspirations Survey 2020–2021 measures Singapore’s residential market prospect, based on potential behaviour of housing consumers in Singa- pore. The survey was conducted by EdgeProp Singapore and Institute of Real Estate and Urban Studies at the National University of Singapore (NUS IREUS) in December 2020, with 1,408 respondents. The responses are analysed jointly with NUS IREUS.

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