
From an investment perspective, property is an asset class just like any investment asset classes such as stocks, bonds, commodities; gold, silver, coffee, etc.
Like all asset classes, what determines its price is the expected value of its worth.
The higher the likelihood that its expected future value is higher than its current value, the more funds will pour in to scoop up the existing supply.
So what affects and determines its future value?
It’s a mix of science, art and emotion!
From an economic aspect, what affects the demand and supply of property will determine its price.
So what affects the demand and supply of property?
Demand is strong when investors see an upward trend of property price, and in the case of Singapore, this is measured by the Singapore Property Price Index. Short of any unexpected uncertainties, investors tend to ride out the upward trend and continue to bid higher and higher for the next property anticipating that they could sell at a higher price and make profits.
Supply is strong when the quantity of property units in the market could not meet the quantity demanded by investors even with increased price. Developers would try to build as many units as they could because each additional unit sold would generate additional income.
Simple right? Well not so!
Although the general fundamentals of property prices in Singapore is as above, BUT property is not just an investment class, it provides a roof for the population of Singapore and the stability of Singapore! And this means that government intervention is not unexpected to keep property prices stable and affordable, and supported by Singapore economic progress.
Let’s peel a level into the details.
In Singapore, more than 85% of the population stay in public subsidized housing – HDB. HDB could be sold in the open market as resale HDB after 5 years of minimum occupancy by the owners. HDB forms the largest supply of property in the Singapore market.
As HDB is public housing built to ensure an affordable roof for the population of Singapore, its prices in the primary market are set by the ministry of Housing Development Board, and its resale prices were closely monitored and watched by the government to ensure that resale prices were align to the Singapore economic progress. Where necessary, the government would step in with changes in HDB policies that affect the units built, prices set for new HDB and resales requirements, which would result in keeping HDB prices within a reasonable price range.
The other 15% of property; landed and non-landed private property are subjected to the general market demand.
And where is the demand coming from?
Generally from HDB upgraders, and others that include buyers and sellers who are right sizing, immigrants, tenants who decide to own a home, investors who buy for rental income or capital appreciation.
So prices of HDB are affected by the government and private are not? Simple right?
No, let’s peel into another level of details.
The prices of HDB and resale HDB, and private property are closely intertwined.
As the majority of buyers for new property launches were upgraders, that would mean that they could only afford to buy if their resale HDB does not provide them a profitable sum. So we could expect the resale HDB prices to continue its upward trend as developers increase their launching price.
Then would it not be easy to stabilize the property market if developers just hold their launch prices?
Well, as Singapore develops and progresses, the value of land in Singapore increases in value. This means that the government is releasing land at a higher and higher price, and land cost forms a significant cost of new development.
With higher land cost being released, old condominiums tend to demand a relatively higher price to release their land for development under the Enbloc scheme.
In addition, with the COVID and war in Ukraine; logistic cost, material cost, worker cost increases, and these costs form the next significant cost of new development.
Developers would have to price their new launches to cover the higher construction cost and earn enough profit to bid for the next block of land released by the government.
So beside HDB policy, the global economy plays a significant determinant role on the property cost in Singapore.
Simple right?
Not so simple, lets peel into another level of detail.
To ensure that the landed property in Singapore continues to be in the hands of local Singapore citizens, non-Singapore citizens were not allowed to buy landed property except in gazette areas such as Sentosa or with their approval of the Land Dealings Approval Unit (LDAU). This policy affects the pool of landed property buyers and in terms affect its prices.
To ensure that Singapore properties do not become bubbles that were unstable and not supported by economic progress and financial ability of buyers, the government introduced the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) that affect the extend of mortgage loan a buyer could borrow for each property count.
To cool off the possibility of an overheating property market, the government introduced the Additional Buyer Stamp Duty (ABSD) that greatly affects the profit returns of buying an additional property in Singapore. This helps to not only stabilize the property prices in Singapore but ensure a more equitable distribution of property amongst the population.
Please refer to Complete Property Guide: Everything you Need to Know Before Buying or Selling Real Estate for more details.
The above provides some fundamentals as a basis towards understanding the property prices in Singapore.
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