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Singapore private home prices rising faster than wages, affordability gap might widen

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With private property prices increasing at a faster rate than wage growth, property experts are saying that the affordability gap for private homes could further widen for Singaporeans.

Professor Sumit Agarwal from the National University of Singapore Business School said that the divide between income growth and residential property price increases could grow bigger, with technology set to displace some high-paying jobs.

Speaking on Tuesday (Dec 10) at a panel discussion on PropertyGuru’s market outlook for next year, Prof Agarwal said: “(It is) something to worry about for the Government and also the private sector. I'm not sure how they will fix that going forward. The private sector is not just going to determine they need to pay higher wages just to keep up with the housing prices.”

While median asking prices of private property have risen by 12 per cent in the last three years, monthly wages have increased only by 7 to 8 per cent over that period based on Ministry of Manpower figures. This was the finding from PropertyGuru’s 2020 market outlook report.

Dr Tan Tee Khoon, the online portal’s Singapore country manager, said in the report: “What needs to improve is wage growth, which should ideally keep up with property price increases to remain affordable for aspirational home buyers and facilitate upward mobility of Singaporeans upgrading from HDB (Housing and Development Board) flats to condos.”

NOT LIKE HONG KONG

While the affordability gap is a concern, the panellists agreed that the situation in Singapore is not dire, as it is in Hong Kong.

“The reason we see big discontent in Hong Kong is because this divergence (between income growth and property price increase) is too big. The question you are worried about is, 'Can we see something like this in Singapore?' I wouldn't worry that much,” Prof Agarwal said.

The main reason is that the Government regulates Singapore’s property market, the panellists said.

For one, the authorities here are able to take actions to correct price growth, as they did in July last year with measures designed to curb property price rises.

“Also, Singapore can turn off and on the tap of importing foreign labour and correcting the wage growth equation,” Prof Agarwal added.

Dr Tan also said that home buyers can look at executive condominiums (ECs) as another option, given that they are usually 10 per cent cheaper than private condominiums, but would have the same status as a private condominium in 10 years.

ECs are a public-private housing hybrid. They start out as upscale public flats, with condo-style features such as pools, but after 10 years they become private condos.

Another panellist, Mr Winston Lee, who is the regional head of special projects at PropertyGuru, said that first-time home buyers can buy an HDB flat and sell it after five years at a higher value.

“The capital growth will provide an uplift to their purchasing power for the private residential property. So that will help to mitigate any gap when wage growth is not fast enough to catch up with private property,” he added.

WHY PROPERTY PRICES KEEP GOING UP

After two quarters of price decline where the market was recovering from the shock of the July 2018 property curbs, property prices in Singapore have been trending upwards.

One reason for the healthy demand is that interest rates are on a downward trend, making loans more affordable for home buyers, PropertyGuru said in its report.

Home buyers who are not getting properties for investment are also not affected by the cooling measures, Mr Lee said.

The cooling measures increased the Additional Buyer's Stamp Duty (ABSD) that home buyers have to pay if they are buying their second property and beyond.

Developers also have to pay a higher ABSD, 5 per cent of which they cannot get back even if they have fulfilled government’s regulations and sold off all the units in their new project within five years of acquiring the site.

Another reason for the continued demand is that developers are not passing on the extra costs of the higher ABSD to home buyers, given that they need to ensure they sell off all their units in five years, Prof Agarwal said.

“The developers may be losing a little bit, but, you know, they make too much money anyway,” he added.

WHAT TO EXPECT IN 2020

While projections for Singapore’s economy next year are not too rosy due to the uncertain global environment, the panellists believe that the property market will remain resilient.

PropertyGuru expects prices to hold steady in 2020 even though the number of unsold private homes is growing.

This is because there is little room for developers to adjust their prices given the high land prices that they had to pay to acquire land when collective sales were the rage in 2017 and 2018.

Prof Agarwal also believes that prices will not rise or fall dramatically but will move within a narrow band.

Still, echoing the sentiments of the Monetary Authority of Singapore, Dr Tan advised interested home buyers to be prudent.

With the decentralisation of the Central Business District, Dr Tan expects projects in the city fringe — known as the Rest of Central Region (RCR) among property insiders — to be in greater demand in 2020. Prices of residential property in that region have risen faster than prices in other parts of Singapore.

Many developers of en-bloc sites bought before the cooling measures are located in the RCR, which includes areas such as Queenstown, Marine Parade and Novena.

Other analysts agreed that the property market next year will remain resilient.

Ms Christine Sun, head of research and consultancy at property agency OrangeTee, expects prices next year to go up 1 to 3 per cent and for 9,000 new units to be sold

Mr Lee Sze Teck, head of research at property firm Huttons, was even more bullish, projecting a 3 to 5 per cent increase in property prices for 2020, with up to 10,000 new units to be sold.

Explaining the reasons for her milder estimates, Ms Sun said that developers are still cautious. She does not foresee a major price hike, saying they would likely price their new launches next year affordably.

Mr Lee’s higher projections were based on the high land prices that developers paid to acquire them during the collective sales fever, as well as an estimate that 50 per cent of new launches would be located in the prime Core Central Region.

Neither Ms Sun nor Mr Lee expects the large supply of unsold units to depress prices in 2020.

Source: TodayOn Line 2019 December

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