Factors Affecting Singapore Condo Prices

AkCondo Blog

When someone in Singapore goes to buy a condo, they may not be aware of all the things that affect the price they have to pay. There are many factors affecting the price of a condo for sale and property types as well. In addition to the obvious descriptive factors such as size, number of rooms, locality etc. there are some important external factors that determine the condo prices and overall price trend. Let us look at three of these factors that are affecting, Singapore’s condo market, among other things.

Rising Interest Rates

Mortgage rates have been low in Singapore over the last ten years. Even at the time of writing you can get a home loan at less than 2%. This is lower than HDB Concessionary Loans, which held at 2.6%. However, these low rates were the result of the global financial crisis back in 2008. In the wake of this crisis, the US Federal Reserve (Fed) reduced the interest rates to zero to boost the recovering economy. This also caused Singaporean interest rates to go down, affecting the prices of new condos for sale and other properties in the country.

Now, this period of lower interest rates and resulting prices is ending. Unemployment has decreased to just 3.9% in the US. Moreover, while US wage growth has been weak, there is a consensus that the US economy has pulled off a recovery, even if it is not a perfect one.

The chief of the US Federal Reserve is increasing interest rates again. The last increase was in June 2018. Two more hikes are expected this year. The mortgage rates and property prices in Singapore will rise along with these rising Fed rates. This is a reason for the government decreasing the upper limit of the Loan To Value (LTV) by 5%. This reduces the amount condo buyers can borrow for their purchase. The government has actually been responding to the increasing rates for a few years by implementing the Total Debt Servicing Ratio (TDSR). So this is not something entirely new, it is a somewhat old factor that has been affecting the price of normal and luxury condos in Singapore for a while now.

Aggressive Push by Chinese Developers

The push by Chinese developers might also be affecting Singapore’s local property market. There were reports last year of developers paying almost 30% more for land compared to five year ago. These developers also expedited the higher prices that the country saw over the past 18 months. However, this trend has now seemed to have cooled off.

Chinese developers’ interest in Singapore’s property market, including condominiums for sale, is a result of the current situation in their own country. The depreciate of Yuan and a tapped out domestic market are examples of the Chinese factors driving these developers to look towards Singapore. By earlier in the year, the Singapore government had been trying to control these changes. For instance, development charges for non-landed residential properties were increased by an average of almost 23%. This has been the highest for a decade.

The huge cash influx was distorting the property market. Developers had been making sky-high bids, resulting in higher condo prices especially an executive condo in Singapore. First-time homebuyers have been outbid by these foreign investors, which has created bubble that might ultimately see a shattering crash. If that happens, genuine buyers, including those looking to buy their first condo would be hit the hardest.

To avoid this, the Singaporean government slapped on a heavy Additional Buyer’s Stamp Duty of 30%. Some might say this move came a little late as the market was already beginning to cool off. Nevertheless, this is an important disincentive for developers and will affect the condo prices in Singapore, keeping them from being completely out of reach for locals.

Intensifying Trade War Between the US and China

The US and China have imposed heavy tariffs on each other. And this trade war is expected to escalate considering neither country is willing to back down. For President Trump, stopping the trade war means going back on his election promises. The Finance Minister of Singapore has warned that this war will not have a positive impact on the global financial market. Given Singapore’s export-driven economy, they country cannot isolate itself from the impact of such global financial issues.

The government is trying its best to curtail property speculation and over leveraging. This initiative will continue despite any grievances by developers and big investors. Slowing down foreigners outbidding locals for condos and other properties will provide some assurance to people looking to buy a condo for sale at a reasonable price.

So there you go. These are the main factors and international forces affecting condo prices in Singapore. It is reassuring to see the far-sighted initiatives of the Singaporean government. Of course, things can always change in the future. At the end of the day, it is in your best interest to be well-informed and on top of the latest factors affecting the local property market.