Are you in search of your next home or seeking undervalued investment opportunities? Understanding today’s property market dynamics is absolutely key. What better way than to analyse the data from Urban Redevelopment Authority’s (URA) quarterly report.
Just recently, URA released their 2023 Q3 report and it unveiled a striking observation: there has been a substantial slowdown in the growth of both private property prices and private property rentals.
To analyse the future outlook of private residential properties, we will delve into key factors presented in the report such as property prices, supply levels, and vacancy rates, as well as other factors like employment trends for insightful predictions.
Non-Landed Private Residential Property Price Index
Shown below is the property price index for non-landed private residential property.
The property price index for non-landed private residential properties surged by 21.7% from Q1 2020 to Q4 2022, with a quarterly growth rate averaging almost 2%. In contrast, the average quarterly growth was 0.6% from Q1 2018 to Q4 2020. Despite a 0.8% uptick in Q3 2023, it remains below the 2.1% quarterly increase seen in 2022, signaling a deceleration in the pace of growth. The reduced growth rates may suggest the property market is approaching its peak, as sustained rapid growth raises concerns about long-term affordability and the potential of a property bubble.
Despite the slower growth, there is no need to be concern of a property market crash as Singapore’s property market has always demonstrated resilience, bouncing back even after facing various financial crises and enduring multiple cooling measures. Therefore, property prices would most likely plateau in the foreseeable future rather than experiencing a dramatic decline.
Now, let’s now explore another key factor influencing the property markert which is the demand and supply dynamics of new launches.
Demand and Supply of New Launches
Shown below are the volume of new launches as well as new sales for the years 2016 to the 3rd quarter of 2023.
The chart reveals a consistent trend where, for most years, the volume of new sales consistently surpasses or closely aligns with the volume of new launches. This pattern indicates a robust demand for non-landed private residential properties, suggesting a balanced market without signs of oversupply.
Looking ahead to 2023 Q4, with an anticipated total of almost 3,500 units in new launches, there’s a likelihood that new launches might exceed demand. However, it’s important to note that this doesn’t necessarily translate to a substantial drop in property prices. Looking at the pattern observed in 2019 and 2020, when there were more new launches than new sales, property prices still exhibited growth, albeit at a more moderate pace which suggest property price is unlikely to fall anytime soon.
Let’s now examine the rental market outlook for non-landed private residential properties.
Non-landed Private Residential Rental Peaking
Shown below are the five year period of rental price index of non-landed private residential units from 1st quarter of 2018 to the 3rd quarter of 2023.
The rental prices for the period from 2020 Q4 to 2022 Q4 witnessed a remarkable surge, posting a substantial growth of 44%, equating to an impressive average quarterly increase of 5%. This upward trend reflects a period of increased demand for rental properties.
Nonetheless, there is significant deceleration in growth observed in 2023, with only a marginal 0.18% increase from the previous quarter. This suggests that rental prices may have hit their peak.
Additionally, the vacancy rate for private residential properties rose to 8.4% in 3rd quarter of 2023 from 5.5% in 4th quarter of 2022. This major increase is attributed to a surge in private housing completions which provided tenants with a broader array of rental options.
There are several macroeconomic factors that may have contribute to this plateau in the rental market. Firstly, it could be due to slower employment growth as shown below.
Employment growth has slowed down significantly from year-on-year growth of 75.9% in 2022 Q3 to only 24% in 2023 Q3.
In addition, there is a rising retrenchment rate, as illustrated below.
Retrenchment escalated from 830 in 2nd quarter of 2022 to 4,100 in 3rd quarter of 2023, which is a concerning trend.
Higher levels of retrenchment and slower employment growth typically indicate economic challenges, potentially leading to a reduction in the number of individuals able to afford mortgage loans or rental due to job loss or income instability.
Furthermore, there is a decrease in the number of job vacancies that adds to the economic challenges.
Yet, the drop in job vacancies from 126,000 in Q1 2022 to 87,900 in Q2 2023 isn’t necessarily all negative. While fewer vacancies hint at tougher competition, it also means more jobs are getting filled. This lines up with slower but steady employment growth.
There are several key factors that suggest a notable shift in the property market towards a buyer’s market.
- Price Peaking
Non-landed private residential property prices are reaching a peak, signalling a potential plateau in the pricing trend. This can create a favourable environment for buyers seeking stable or potentially lower property values.
- Balanced Supply and Demand
The alignment of housing supply with demand indicates a more balanced market, providing buyers with a range of options and potentially reducing competition for available properties.
- High Rental Prices
The observation of high rental prices might influence potential buyers to consider purchasing instead of renting, especially if rental costs are approaching levels that make homeownership more attractive.
- Increasing Vacancy Rates
Rising vacancy rates suggest a softening demand for rental properties, which could lead to increased negotiation power for buyers.
- Slowing Employment Growth
The deceleration in employment growth may contribute to a more cautious approach from potential homebuyers, potentially influencing the market in favour of buyers.
- Possibility of Declining Interest Rates
The anticipation of declining interest rates, as reflected in the analysis of fixed and floating mortgage rates over here, further enhances the attractiveness of the market for buyers.
These prevailing factors indicate a shift toward a buyer’s market, creating an opportune moment to seize. To maximise the potential for substantial capital appreciation, consider selling at a favourable price and buying at an even lower cost. This strategy can help you tap into the potential of acquiring undervalued assets. To find out more, feel free to contact our professional associates at Crestbrick to assist you in making informed decisions in acquiring your next property.