The Singapore property market has seen many unexpected developments, since the Coronavirus pandemic. While it was expected that Covid-19 could cause the market to crash, the opposite has happened – not only are private home and resale flat sales up, even the landed segment is picking up.
Indeed, one of the big surprises for Q3 2020 was a roughly 50 per cent surge in transactions for landed homes. There were 544 landed transactions in Q3, up from a mere 212 in Q2. Of these 544 transactions, 468 were “true” landed properties, while 76 were strata-titled.
Even the most expensive end of the landed segment – bungalows of over 15,000 sq ft. – saw 10 transactions in Q3. It’s not common for this segment to see double-digit transactions in a single quarter.
But why is it that such high-quantum properties are seeing demand, in the midst one of Singapore’s worst recessions?
Here are the likely reasons:
1. Landed homes are a safe haven asset
Landed homes have managed to appreciate almost regardless of the economic situation. As an example, consider the last major downturn, the Global Financial Crisis in 2008/9:
Between the Global Financial Crisis to the last property peak in 2013, landed home prices still appreciated by 82.8 per cent; from $675 psf to $1,233 psf.
Also notice that the prices were on a steady uptrend despite the uncertainty; the prices only saw a decline from 2014 because of aggressive cooling measures. Even so, prices have managed to reach an average of $1,296 psf – up a further five per cent from 2013.
In a time when other assets – such as equities – seem volatile, landed homes are one of the safest places for the wealthy to park their assets.
This also carries over to the wider property as well. Even during 2019, for instance, when the global trade war is shaking up the economy, Singapore real estate drew about $15.2 billion in investments. This was up around 39 per cent from the year before, despite the harsh economic climate.
2. Investors may be liquidating other assets to move into real estate
At the time of writing, the STI has been down for its third straight month. At the same time, bond yields have begun to look unattractive, in relation to low interest rates (a situation that’s favourable for real estate investment; see below).
As such, investors may be shifting from stocks and bonds, and into more defensive assets such as property. This was, in fact, cited as one possible reason for the surge in property prices between 2008/9 to 2013; at the time, home prices rose about 58 per cent across the board.
It’s not likely that we’ll see an equally dramatic rise today – the government has learned from past experience, and today measures like the Additional Buyers Stamp Duty (ABSD) and loan curbs are in place. This prevents over-enthusiastic property investment and the forming of property bubbles.
Nonetheless, the downturn does prompt more interest in property; and landed properties stand out even more due to their scarcity.
New condos and flats are built everyday, but there are only around 72,500+ landed homes in Singapore; and the number doesn’t rise often due to limited land space.
3. A hedge against inflation
Without delving too much into economics, note that low interest rates tend to drive inflation. In fact the entire purpose of keeping interest rates low is to get people to spend, and keep the economy stimulated – but increased spending also causes the general cost of goods to rise.
As such, investors are less inclined to hold cash in such situations. The interest paid on their bank accounts are lower than rising costs.
In Singapore, real estate – particularly scarce landed properties – can act as a good hedge against inflation. As the general cost of goods rise, the price of a house will rise with it. And being that landed properties are scarce, even increased supply of homes – such as in the form of more condos or flats – are unlikely to slow their appreciation.
4. Interest rates are at record lows
We’ve talked about how low interest rates are making some assets, like bonds, unattractive; and also how they drive inflation. But we should also consider how low interest rates affect home loans.
Many home loans in Singapore are pegged to the Singapore Interbank Offered Rate (SIBOR). The current SIBOR rate, plus your bank’s spread, determine your home loan rate.
At present, interest rates are so low that even current home owners have been rushing to refinance. The average interest rate is now around 1.3 per cent per annum; down from two per cent in 2018.
For high-quantum properties like landed homes, this percentage difference can have a huge impact. For example:
Say you borrow $2 million for 25 years, at an interest rate of two per cent, to purchase a landed property. This would come to about $8,477 per month, with total interest repayments of about $543,000 by the end of the loan.
At 1.3 per cent, the same loan would cost about $7,812 per month, and total interest repayments would be around $343,600 by the end of the loan.
(Ps. If your home loan is way more expensive than this, contact me on Facebook. We may be able to help you get a cheaper deal).
Did you know there are landed homes for under $2 million? Not every landed property is a $10 million+ bungalow on Sentosa Cove.
Also, landed homes on the mainland can only be bought by Singapore citizens (barring rare exceptions), so you don’t have to compete with the ultra-rich from all over the world. Coupled with the sale proceeds from a previous home, many Singaporeans may be surprised to find they can own one.
If you’re interested to find out, do contact me on Facebook. I can help you weigh your various prospects.
In the meantime, do follow me on RonChongProperty.sg, for further property updates as the Covid-19 situation unfolds.