Cooling measures gloom Singapore’s private residential market outlook

Private residential transactions may decline up to 29% YoY in 2022.

The private residential market may have been the best performing sector amongst Singapore's property sector in 2021 with up to 34,000 recorded transactions—but this will not be the case for 2022, Knight Frank claimed. Thanks, but no thanks, to the cooling measures imposed by the government to stabilise prices.

Unit transactions for 2021 saw a 60% increase from the over 21,000 units transacted in the previous year. With the demand rising, the prices for the sector rose 10.6%.

“This was also due to the organic owner-occupier demand at most levels of society in Singapore,” Leonard Tay, head of Research at Knight Frank Singapore, told Real Estate Asia in an exclusive interview. 

However, the Singapore government announced new measures towards the end of the year to “cool the market and prevent the prices from running away” Tay said. These measures include the raising of the Additional Buyer’s Stamp Duty (ABSD). 

“The imposition of cooling measures announced in December last year has kind of clouded the private residential market outlook after the strong run it had from the end of the circuit breaker of 2020 right through the whole year of 2021,” he said. 

As a result, the new sale of fresh units is to reach 8,000 to 9,000 with fewer new projects in the pipeline. 

Around 16,000 to 19,000 units might be sold in the resale or secondary market, reflecting a total private home sale volume of about 24,000 to 28,000 units which is 16% to 29% below the 2021 levels.

Knight Frank expects prices to increase milder by around 1% to 3% in 2022 because of these measures, with interest rates seen to increase throughout the year.

On the other hand, Tay said some foreigners may be deterred from buying luxury homes because of the increase in the ABDS but some might still be interested in purchasing luxury homes in the Core Central Region as the prices in this area only increased by around 3.8% last year.

This is in comparison to the prices in the Rest of the Central Region and Outside Central Region which saw prices increase by 16.3% and 8.8%, respectively.

“Given the amount of anecdotal interest and inquiries from potential foreign homebuyers, and the fact that the global pandemic has created a premium on stability in a very uncertain world, the globally mobile wealthy might still be prepared to pay the 30% ABSD as a premium for entry into Singapore's prime residential market,” Tay said.

Under the revised ABDS rates, the rates will remain 0% for Singapore Citizens (SC), and 5% for Singapore Permanent Residents (SPRs) on their purchase of their first property. The rate will be raised to 17% from 12% for SCs’ second residential purchase, and 25% from 15% on their third and subsequent purchases.

The rate for SPRs was raised to 25% from 15% on their second purchase, and to 30% from 15% on their third and subsequent purchases. ABDS rates for foreigners buying any residential property were raised to 30% from 20%, whilst the rate for entities purchasing any residential property, and developers purchasing any residential property was increased to 35% from 25%.

Shophouse market

The shophouse market, on the other hand, is gaining a little traction as keen interest by private offices and family offices for the property remain.

“This is due to the nature of this property for its cultural, iconic affinity, the nostalgia and local familiarity that set shophouse prices high right now given that there is more demand chasing limited supply,” Tay said.

Some owners are unwilling to sell their properties unless an investor offers an enticing premium, Tay said, adding that interest in shophouses as a “defensive asset class” remains firm.

He also said that the “steady gentrification” of shophouse districts continues to feel demand, and for this year, total sales value for the market could reach $2b, especially because there will be a moderate spillover effect from investors from the residential sector to the commercial shophouse sectors because of the cooling measures.