Why Are Home Prices Increasing In The Face Of COVID-19?

The most common questions I encounter from buyers these days during the dawn of 2021 are as follows:

“Why are property prices in Singapore holding steady despite the pandemic?”

“Shouldn’t the prices be falling?”

“Where are the fire sales?”

“What should we be expecting this year?”

Many of them are surprised and perplexed at this unexpected turn of events. They were looking forward to value buys as the economy was brought to its knees in the throes of a global crisis.

I’m sure this is something many consumers would like to find out, or at least gain a clearer understanding of. Keep reading to have the full picture revealed!

Take a look at the graph below.

For some reason, we have an increase in reports of buyers snagging new launches, increase in resale prices and increase in transaction volume for the private property market. In fact, the overall Pte volume hits 2 years high in Q3 2020.  

Here’s a quick run through of recent launches…

Jan 2021, Normanton Park sold almost 30% of the 1862 units at an average of $1750psf on first day of launch!

And in the month of December, UOL sold 70% of Clavon, which is a whopping 442 units from a total of 640!

In November the same year, The Linq was almost sold out over the launch weekend, with prices ranging between $2150psf to $2200psf. 

Earlier on in September, Penrose sold over 60% at launch. 341 units out of a total of 566 units were snapped up at an average price of $1500psf to $1700psf.

Next up,  Reef At King’s Dock and One North Eden are highly anticipated to be sold out projects. 

What’s going on here? Is the market going crazy? And even if so, what is the provenance of all this activity?

Let me address the Million-dollar questions that have been boggling everybody’s minds. 

Most of the time, headlines and your daily scoop of financial news cover mainly the macro aspect of the market. However, they do not account that a land-scarce state like Singapore is very sensitive to micro changes that are worth zeroing in on, which is the focus of this article.

The first step is to assess the source of the buyers.

In this Straits Times Article (9 Sep 2020) – https://www.straitstimes.com/business/property/private-home-resale-volume-hits-2-year-high-in-aug-srx

The article mentioned that “The strong demand from HDB upgraders showed in the transactions of mass market homes in the outside central region (OCR), which accounted for nearly 60 percent of August’s resale transactions. As in July, this group of buyers entered the private resale market in greater numbers when many flats became eligible for resale following their five-year minimum occupation period.”

This record was outperformed in Oct 2020 and Straits Times again reported this…

So where are these demands coming from, and is it sustainable?

In short, HDB upgraders make up the bulk of it as revealed in the two Straits Times articles. 

In the chart below, you will see a record number of HDBs reaching MOP from 2019 to 2022.

HDB owners are only eligible to sell their HDBs after it has achieved a 5-year MOP. Hence, this never before seen quantity of MOP in 2019 and 2020 explains the strong demand in the private market, especially for projects which attract HDB upgraders. 

Why are the record numbers of HDB and DBSS reaching MOP crucial? How does it affect the market?

I’d like to draw your attention to these two clusters in Sengkang that are right beside each other:

Cluster A is about 16 years old. From Feb to 12 Nov 2020, 11 units were sold.

Cluster B reaches MOP early this year. From Feb to 12 Nov 2020, 61 units were sold. 

From here we infer that many HDB owners actually sell their HDB right after MOP. 

Naturally, it demands questions along the lines of:

“What do these homeowners do after selling their property?”

“Where do they buy their next house? Which areas/conditions are sought after and why?”

“Most importantly, how long will this trend continue?”

By looking at the previous chart, we can see that this trend of high MOP numbers will retain well into 2030, which is another 10 years from now!

How will this impact the private property market, and how can we optimize the growth of our asset?

Let’s look at another demographic of buyers: The EC owners.

When an Executive Condo Project completes its MOP, it normally sees a huge jump in the number of sales transactions. 

To better illustrate this, we can utilise a side by side comparison of A Treasure Trove, a private condo which was completed in 2015, and Twin Waterfall, an EC that has recently fulfilled its MOP.

In the past six months, Treasure Trove had 20 transactions, while Twin Waterfalls secured 80!  

Subsequently, after the EC owners profit from selling their estate, they typically upgrade to a bigger or better location. Otherwise, they expand their portfolio from one to two properties. 

In other words, this pool of EC owners whose homes have reached MOP will also create a steady demand for the private property market. 

Here is a list of Executive Condominiums and their estimated year of MOP. Disclaimer: This list may not be fully exhaustive.

Coupled with this strong demand is a deficit in the supply of available brand new private properties on the market after 2024. While these numbers can still be increased, mitigating the shortage is highly dependent on developers. 

Pipeline supply of private residential units and ECs (with planning approvals) by expected year of completion

Source: URA

So, in terms of statistic, here’s some market update:

1. HDB Resale Prices increased by 4.8% for the whole of 2020 (based on flash estimate).

2. Preliminary HDB resale volume in 2020 highest after 2012.

3. Private Residential Property Price trending upwards.

Looking at all these performance indicators , supply and demand, I would think that there are opportunities in the market for us to grow our asset in 2021.

However, all investments no matter how positive looking comes with risk. Please do not rush in for the fear of missing out. Understand your risk tolerance, have a clear strategy and understand the financial commitment before taking action.

Many of you are already spending hours doing your own research, why not spare a bit of time for a chat with me?

I would love to share my findings with you and have an obligation-free discussion on your plans and work out a clear customized proposal for you.

At the end of the day whether you work with me or not, I’m sure you will benefit by being better equipped with facts and figures.

Please visit www.ChooseTheRightProperty.com for more of my property research articles and case studies.