Cooling Measures, Looming Interest Rate Hike. What Should You Do Next?

Should You Kick The Can Down The Road Or Stare At The Lion Head On?

Whenever we face a problem, there are two things we can do. First, we can avoid it by not looking at the issue and kicking the can further down the road. Secondly, we can analyse the situation in-depth and learn from the entire process. So, with this recent cooling measure and looming interest rate hike, what will be the climate of Singapore’s real estate market in 2022?

It is crucial to determine the relationship between supply and demand more intimately to determine what will happen next. While we know of the upcoming new launches in 2022, most consumers do not understand the market’s reaction to this looming supply. Some think these new launches will do terribly and flood the market with many units. With the increasing quantity of unsold units on hand, developers might get anxious and clear them at discounts. Therefore, these buyers feel that it would be most prudent to wait for prices to correct.

On the other hand, some buyers continue to make purchases. So why do these consumers behave this way? Do they have an urgent need to make that purchase? Or just terrible in their decision-making process?

Numbers Will Give You A Better Picture Than Market Sentiment

For an in-depth analysis of consumer behaviour, I always head to my favourite website at https://www.squarefoot.com.sg. From here, you would break down the specific demand for selected areas in Singapore. You will be surprised that different regions have very different results. While most of the supply and demand dynamics follow a general trend, the relationship can vary from district to district. Let’s look at district 20, one of Singapore’s most popular housing estates.

Data Unrefined Can Be Very Confusing. Source: https://www.squarefoot.com.sg/

Making Sense Of The Data

At first glance, the prices look confusing and seem to move haphazardly. I recommend selecting only the resale transactions to make sense of the data. Resale prices act as a guideline. They are a clear indicator of the strength of demand for that particular district—the more consistent the price increment and volume, the higher your purchase’s likelihood of gaining value. Everyone knows that resale properties are always lower than new launches. Hence, an increase in value would mean that the specific market is acceptable to price hikes.

Resale Prices In District 20 over the last ten years. Source: https://www.squarefoot.com.sg/

Places Where Demand is Inelastic Are Kind Of A No Brainer

You can see that despite all the cooling measures thrown by the government, non-landed residential prices in Bishan and Braddell continue to hold and go up over time. For products that exhibit this behaviour, you can classify them as having inelastic demand. While buyers may adopt a wait and see attitude after the cooling measures, everyone will start jumping in once they see the price head upwards. This demand graph tells you that the best time to buy a property in Bishan was yesterday. I still remember back in 2014, there was a lot of criticism on the Sky Habitat launch. Many said that the Sky Habitat project was overpriced, and you would be dumb to purchase a unit there. Well, look how that turned out.

Recent Transaction Of A Unit At Sky Habitat

Extreme Care and Diligence Required for Other Regions

While some districts follow a similar trend to what we see in Bishan and Braddell, other districts do not. These areas are where you need to exercise extreme caution and carry out extra due diligence in your property search. One of these areas is district 1. Although district 1 is a prime location and has access to the best tenant pool in Singapore, prices have been range-bound in the last ten years.

Prices Of Non-Residential Landed In District 1. Source: https://www.squarefoot.com.sg/

What is going on with this district? Why haven’t prices gone anywhere? Compared with the rest of the island, this area may seem incredibly “cheap and undervalued” at first glance. However, despite the increase in sales volume over the last two years, it is still insufficient to push prices upwards. Demand graphs like these are why specific undervalued properties are terrible buys. And if you compare this demand graph with district 20, it should be evident that location is the single essential factor that affects prices in real estate.

If You Think That A Prime District Price Must Always Command A Higher PSF. Think Again.

Cheap can always go cheaper. Although we naturally tend to look out for cheap deals, it is far more crucial to understand what affects future demand. Some buyers make the mistake of purely focusing on undervalued properties. They think that having a margin of safety from the current valuation price would make that purchase is a good deal. However, this arbitrage may very well be an illusion. In some cases, what you pay for may very well be the new valuation.

Other Resources. Weekly New Launch Sales Data.

In addition to using the resource from square foot research, we have also published a summary of the weekly new launch sales for your reference. From here, you would have a better idea of the impact of the latest cooling measure on the sales of the recent launches. With a combination of these 2 data streams, you would have a much clearer understanding of what is happening in the real estate market. Don’t rely on market sentiment or kick the can down the road. Look at the numbers yourself, and you will have a better idea of where the market is heading.

Article contributed by Jerry Wong.

Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos and has been in real estate for ten years. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home. Or making well-informed decisions that see their assets grow. Book a video call appointment, and Jerry will share with you the following.

  1. How certain factors affect real estate prices. Why some condos can make a million dollars while others can lose that same million.
  2. Why timing is not the most important thing. Because some people can buy the same condo at the same time, but one end up making $100k to $200k while the other suffers losses of the same amount!
  3. Understanding your requirements and craft a solution for your real estate needs. Be it in asset progression, tax planning, financial calculations, rentals, sales, etc.

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