How Singapore’s residential investment market has evolved over the years

The Outside Central Region achieved the highest returns in the last ten years.

According to a recent article by JLL, while many Singapore residents aspire to own and live in a private residential property, there are others who wish to invest in a second property to derive rental income and enjoy capital appreciation. Therefore, JLL says it would be useful to examine how the residential investment market has changed and help buyers in their investment decisions.

Here’s more from JLL:

Attractive returns from investment properties

Residential property investment has been popular because of attractive returns from rental yields and capital appreciation. For example, between 2001 and 2010, the Urban Redevelopment Authority’s (URA) rental index grew 55.4%, while the price index rose by 46.7%. Thus, investors would have received total returns averaging 6% to 7% per annum. During this period, the economy grew strongly at an average of 5.9% per annum, despite the downturn in 2001 and the Global Financial Crisis (GFC) in 2008/09.

Increased opportunities for investment

After private home prices bottomed in mid-2009, following the GFC, they rose strongly by 62.2% to peak in 3Q13. The sharp increase in prices led to developers “right-sizing” the units for sale so that absolute prices remained affordable to buyers. As a result, the median size of non-landed units fell from 94 square metres in 2010 to 69 square metres in 2020 for new sales. In addition, many investors bought smaller units with one or two bedrooms due to their affordable pricing.

Changing residential investment landscape

In the last decade, several factors altered the residential investment landscape.

1. Cooling measures were imposed, especially between 2010 and 2013, to arrest rapidly rising prices and prevent an asset bubble.
2. As a developed economy, slower GDP growth was recorded, averaging 3% per annum.
3. There were increased restrictions on the hiring of foreigners to reduce dependence on them and raise productivity.
4. There was a significant increase in completed supply, especially between 2014 and 2017, due to the buoyant new sales market in the preceding years.

Performance of sub-markets

Figure 1: Rental and price performance of private non-landed homes1 from 2011 to 20202

1apartments/condominiums
2based on URA rental and price indices
3prime sub-market
4city fringe sub-market
5suburban sub-market

Source: JLL Research/URA Realis

Figure 1 shows how private residential rents and prices changed over the last ten years in each of the three sub-markets. Rents generally lagged behind price increases, but RCR held up better as its rents were more competitive than those in CCR, despite being near the city. Moreover, OCR led capital appreciation as demand was well supported by upgraders, who were less affected by cooling measures. In CCR and RCR, demand from investors, including foreigners, was affected by higher Additional Buyer’s Stamp Duty (ABSD) rates.

The analysis in Figure 1 shows that investors in OCR achieved the highest returns in the last ten years, mainly due to superior capital appreciation.

Figure 2: Outside Central Region non-landed price and rental trends

Source: JLL Research/URA Realis

Outlook

Since cooling measures are likely to remain in place, OCR may continue to lead capital appreciation. Supply from new project completions is expected to be significant between 2022 and 2024, so rental performance may be muted during that period. Current net yields, which are averaging around 2% across sub-markets, are expected to remain low. Therefore, in the medium term, investors may still find OCR leading in overall investment returns.