Is 2020 the Best Year to Buy Private Property in Singapore?

Written by: Rita Magallona

At last, you’ve saved enough money to turn your dream of buying property into reality. Is this the year you finally make the leap from renter to homeowner, possibly even a landlord? Before calling a property agent to help buy your dream home, consider the factors that could affect your decision to buy private property.

Should You Be Afraid of the Big, Bad Property Glut?

If you’ve been browsing through real estate ads or articles recently, you’ve probably come across the term “property glut” several times. But what does it mean, and what impact would it have on your first Singapore property purchase?

1.How Many Units Are Affected?

As of September 30, the Urban Redevelopment Authority identified an oversupply of about 32,000 residential units in Singapore- both completed units and those still under construction.
Over 10,000 units remain unsold in suburban neighbourhoods. Downtown properties are only slightly better off, with almost 9,000 units still waiting for buyers.

2. What Caused the Property Glut?

Industry experts point to the en-bloc redevelopment fever and the resulting property boom of 2017 as the reason behind the oversupply. Back then, developers were snapping up old buildings in collective sales and transforming them into new flats.
People were happy to sell their old apartments, as these deals netted them staggering amounts of money. Developers purchased over 60 en-bloc properties between 2017 and 2018. Unfortunately, the actual demand for private property has not quite matched the developers’ projections.

3. How Long Will It Last?

About 2,500 homes are sold in Singapore each quarter. Given sales statistics, it may take four years before all of the backlog residential units are finally sold.

4. How Will It Affect Prices?

The oversupply could potentially mean lower prices for both landed and non-landed units, especially in areas outside the Core Central Region (CCR). Prices in CCR districts are still expected to increase since there is always a demand for housing near downtown businesses and schools. But don’t expect too much of a discount, as developers would still need to make a profit.

5. How Will It Affect Collective Sales?

If you’re interested in reselling your home in a collective sale, you need to take note that developers are now more cautious of en-bloc transactions, given the oversupply. After all, they have to pay the Additional Buyer’s Stamp Duty (ABSD) penalty if they are unable to sell all their units within the government deadline of five years.

What Other Factors Should You Consider?

Don’t rush into a sale just yet. Lower prices can be tempting, but that’s not the only thing to consider when buying a private property.

Mortgage Rates & the Economy

This aspect is a win for homebuyers. Banks usually charge 2% interest on average for housing loan packages – slightly more affordable than the 2.6% offered by the HDB. These rates have remained pretty constant in the past ten years.

Did you know that local rates are influenced by what’s happening an ocean away? When the US Federal Reserve sets interest rates in their country, that decision also affects the interest rates in Singapore. So far, the Federal Reserve has held off on rate hikes, which means rates continue to remain steady.

That is, unless something drastic happens to the economy. Singapore’s economy is intricately linked with global events, and the first year of the next decade is bringing in a lot of changes. Brexit, trade wars – take your pick.

In fact, the Monetary Authority of Singapore warns about economic uncertainty in 2020, which may affect your ability to get a loan. Even if mortgage rates stay the same, your salary next year might not be enough to cover the monthly amortization.

Government Housing Policies

First-time buyers need to remember these rules when crunching the numbers.
The government imposed several policies to avoid a potential bubble and keep prices from skyrocketing during the property boom of 2017-2018.

Loan to Value Limits

In July 2018, the government decreased the Loan to Value (LTV) ratio limit from 80% to 75%. This means that homebuyers need to pay a 25% down payment for housing loans, including a 5% cash payment of the property’s asking price.

Total Debt Servicing Ratio

Meanwhile, the Total Debt Servicing Ratio (TDSR) limit ensures that debt payments don’t go beyond 60% of a person’s gross monthly income. That 60% limit includes not just your home loan but also any other debt – credit cards, education loans, medical bills, etc.
Buyers also have to pay for the ABSD. The amount depends on the buyers’ status and the number of existing properties they possess. First-time individual buyers who are Singaporean citizens usually pay the lowest ABSD rates.

Rental and Resale Market

During economic uncertainty, corporations tend to hire less foreign workers and budget conservatively for their housing. This means that landlords with expensive CCR properties may face more vacancies in the coming months. Also, renters often prefer shorter leases so that they can move to more affordable housing when the opportunity comes.

In the next two years, about 50,000 resale apartments would reach their MOP (Minimum Occupancy Period). A lot of property owners will be looking to resell or rent out their old flats, which are much cheaper than brand-new units. Buyers can take advantage of cheaper financing, particularly the government’s policy change on using the Central Provident Fund (CPF). This fund is now available for purchasing older resale apartments.

What Are the Key Takeaways?

Given what experts say about the real estate scene, what can homebuyers expect in 2020?

1. First-time homebuyers

As prices have the potential to dip, 2020 could possibly be the year you achieve that elusive dream of moving from a rental flat to your own house. This is especially true for those who plan to move to the Outer Central Region or buy an older flat. Buyers will also have a wider variety of housing to choose from.
Ready to take the leap? Here’s a list of the things you need to consider before buying your first home.

2. Investors and experienced homebuyers

It’s wise to manage your expectations. If you’re purchasing private property as an investment tool – whether you plan to rent it out or resell later on – look beyond the attractive price tag. Consider how the (local and global) economy, real estate market trends, and existing laws would affect your investment.

It may take a while for you to make a profit.
Still keen on buying a property in Singapore? Find new launch projects or talk to our real estate consultants to provide you with property insights and assist you with everything you need to know from calculating Buyer’s Stamp Duty, Additional Buyer’s Stamp Duty, exercising the OTP to sealing the deal.
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