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My forecast for landed properties in Singapore in H2 2023, based on 16 years of experience

How have landed properties in Singapore performed in the first half of 2023? More importantly, what lies ahead for the rest of the year?

Lately, we've been receiving requests for a comprehensive overview of the segment's activity in the first half of 2023. As seasoned agents at SRI, we often allude to the vast reservoir of data at our disposal. In this article, we're ready to share some of it and help you make sense of the cold, hard facts and figures.

In 2022, there were approximately 2,000 transactions across the island, considering all types of landed homes, whether leasehold or freehold. Fast forward to the present, the Year-to-Date (YTD) data for 2023, including Q1 and Q2, stands at 940 transactions.

In my training, I often analyse data from period to period. In the first half of 2022, the transaction volume was about 1,100 units. However, in the first half of 2023, we observed a total of 740 transactions – a significant drop in volume. What gives?

Why have transaction volumes dropped?

1. Interest rates

Can we really discuss real estate in 2023 without mentioning interest rates? As realtors, we understand that this has always been a primary concern for buyers, no matter the segment of the property market they are exploring. However, there's no need to dwell on this topic any longer. High interest rates mean that money is expensive, and new purchases may seem less attainable. You're already aware of this. Let's delve into something more nuanced.

2. Price increase

On a year-on-year basis, prices have surged by approximately 13%, with the price per square foot (psf) rate increasing from S$1,400 to S$1,600 between 2022 and 2023. At first glance, this might not seem like a significant increase, but consider a S$4 million landed home you had your eye on last year. If it were still on the market today, it would likely cost you around S$4.5 million.

Source As interest rates and prices increase in tandem, it’s safe to say that few people will wake up in the morning ready to blow S$4 million on a new house. Instead, buyers are going to be twiddling their thumbs for a little longer, and will most likely have to restructure their financial portfolios before considering entry into this segment. Therefore, while market activity will be sustained by the enduring interest in landed properties in Singapore, transactions will take longer to finalise—a pattern we've also observed in the HDBs and condo segments.

3. Inventory

Lastly, it doesn't help that the supply of landed properties in Singapore has diminished. This phenomenon is quite understandable, as landed properties have traditionally been viewed as long-term investments, typically held for periods spanning 7 to 10 years. This extended ownership is partially due to the substantial efforts involved in alterations and additions (A&A) or even complete rebuilding.

Buyers in this segment often prioritise wealth preservation over a speculative trading mindset, resulting in less frequent changes of ownership for landed properties in Singapore. This contrasts with the condo segment, where new developments are introduced annually, constantly rejuvenating and expanding the available inventory.

Forecast for landed properties in Singapore

1. Stability in interest rates

Personally, I anticipate stability in interest rates. While the asking prices may seem relatively high, we've witnessed a resurgence in property transactions. The big question is: why now? Well, if you've been keeping an eye on the financial news, you would have noticed that the Federal Reserve seems committed to keeping interest rates relatively steady, perhaps with just one more nudge upwards. It's making buyers wonder: Could this be the final push, the moment we've been waiting for?

Over the last 2-3 months, fixed interest rates have also been gradually inching downward. In fact, some banks are dangling the carrot of a 3.1% fixed rate. If you're considering a 1-month or 3-month SORA loan with a 0.5% spread, the difference between choosing a fixed rate or a floating one today is 1%. In the context of the landed property scene, where you're dealing with a S$3 million loan for that shiny $4 million property, that seemingly small 1% difference suddenly packs a punch, potentially saving you S$1,000 each month. And after all the nail-biting over interest rates, there's a silver lining. Loan packages are finally starting to paint a clearer picture of what's on the horizon. Some of our savvy buyers have chimed in, saying they're comfortable taking the plunge at rates hovering around 3-3.1%. If we extrapolate this eagerness to other potential buyers, we're poised for a wave of transactions in the upcoming months. Jackie, our go-to expert, has been fielding a surge in viewing requests. And guess what? Many of these eager buyers already have their In-Principle Approvals (IPAs) lined up, ready to dive into the market

2. Prices will be capped

A 13% increase in price is substantial, but before you start picturing property prices rocketing into the stratosphere, let me drop a little reality check: we don't anticipate prices surging much higher. For potential buyers, my advice is to consider that what you see is likely what you'll get. While there might be some room for negotiation, selling prices are expected to remain relatively stable.

Buyers today are enthusiastic about this property segment, but they're facing limitations in terms of access to leverage. For starters, the Monetary Authority of Singapore (MAS) and the banks have implemented prudent measures, including what is known as a "stress test."

Essentially, this is a threshold they set for interest rates, typically around 4%. However, it's worth noting that some banks have raised the bar even higher, to around 4.5-4.7%. What does this mean for you? Well, if you're pulling in the same salary as you were last year, you won't be able to snag such a hefty loan. You'll have to dip deeper into your CPF and cash reserves to fulfil your dreams of buying a landed property in Singapore. The admission fee to the exclusive club is now higher.

What can owners of landed properties in Singapore do?

Tip 1: Don’t be too fixated on your selling price

This holds true especially if you’re looking to upgrade. Maybe you’re already in the profitable zone, currently staying in an inter-terrace but are ready to move on to a semi-detached or corner terrace. This could be an opportune moment, as although buyers have reduced access to leverage, there is no shortage of interested buyers. As proud owners of landed properties ourselves, it's heartening to witness the enduring interest of potential buyers in this exclusive segment. Yet, a word of wisdom for sellers – the buyers in this bracket tend to be a tad cautious when it comes to parting with hefty sums, like 4 million.

Tip 2: Consider entering the fray even if you don't intend to sell

We would anticipate a surge in buying activity, even though it's unlikely to surpass last year's transaction volumes. If you're currently sitting on a landed home, and are looking to take a contrarian stance, now might be the time to throw your house into the mix and test the waters. Given the limited number of houses available on the market, this move could reveal your standing.

Many individuals we've spoken to often attempt to time the market, striving to determine if they're riding the market's peak or catching it at the bottom. The odds of catching the peak are considerably higher than timing the bottom. Perhaps you've contemplated it, but you're hopeful for the market's continued upward trajectory. We believe we're at an inflexion point, and there’s no harm in giving it a shot especially if:

  • You are located within a 1-kilometre radius of a reputable school.

  • You currently have a property under lease and do not expect rental yields to be too lucrative. And guess what? It’s due for renewal within the next 3-6 months.

  • A property that's already well-maintained and move-in ready, requiring minimal additional work.

In our view, houses that meet the last criteria are the low-hanging fruits in the market. Out of every ten buyers, perhaps only one or two want to undertake extensive renovations. The majority simply wants to secure a position in the market – plans for A&A or rebuilding can wait.

If you identify with any of the mentioned categories, or if you're interested in the market trends we've derived from our discussions with clients, don't hesitate to contact us. With our eyes and ears on the ground, we have a sound knowledge of what buyers are seeking and where they’re looking. Feel free to reach out to me (Harvey Chia) at 9199 9141, or you may just spot us in your neighbourhood very soon.


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