Leading up to 2023, the market has been flushed with negative news of the impending recession and high interest rates, coupled with the collapse of real estate in major economies such as Australia, China and the USA. However, here’s why we do not expect real estate prices in Singapore to crash in 2023.
Mortgage Servicing Ratio / Total Debt Servicing Ratio
Mortgage loans in Singapore are based on the MSR for HDB and TDSR for private properties, wherein only 30% and 55% of income is used to access loan amounts.
The loan amounts are further restricted with 3% and 4% base interest rates for both segments respectively, ensuring mortgages can be supported in an inflationary environment.
Singaporeans holding power is further cemented with the fact that with only 75% loan available for property purchase, a buyer will require to have up to 29% of cash & CPF (including stamp duties) to downpay for an own-stay piece of real estate.
For investors with a 2nd property or more, the down payment required of cash & CPF (subject to certain terms) spikes to 59%. If an individual has such purchasing powers, it is very likely they will not require to fire-sale their investment properties, especially when it is a boon for the rental segment currently.
Sellers Stamp Duty
The final policy which has curbed most of the speculative aspect of real estate would be the introduction of the SSD, whereby sellers are taxed heavily if a property is flipped within 3 years. With this lock-in period, buyers will now have to be more prudent with their purchases given the illiquidity of real estate in general.
“BTO Ai-mai” a phrase uniquely Singaporean, where to get married, a couple will ballot for a BTO before proposing and this is the route majority of young couples take.
The construction of these public flats are highly subsidized by the government and the couples are also given access to grants, which further increases the affordability of home-ownership.
Besides government intervention, we believe our culture has a lot to do with home-ownership in Singapore. Majority of children will stay with their parents until they are ready to move out, and parents will always inculcate in their children to always buy and not rent and thus based on latest statistics, Singapore has a very strong home ownership profile of close to 90% versus 60% in other developed countries.
And when the children shift out, it will usually be in the vicinity of the parents residence for childcare support.
Parents in general would also purchase and hold properties long term of at least 10 years close to the children’s school for ease of travel.
No doubt Singapore’s real estate market will be affected by macro factors, however, with our local locus of control by the government and home-ownership stemming more from a need aspect rather than speculation, real estate prices in Singapore are going to remain strong in 2023.
So never try to time the market but make informed decisions that suit your family’s needs. We have identified some opportunities in our previous post. However, if you would still require more clarification, do reach out to us here.