Where things stand currently at the starting line of 2023, global economies – including Singapore’s – will likely continue to be occupied with three issues from 2022, namely rising interest rates (and by association, inflation as well as recession), the Russo-Ukrainian war, and not least, the still-lingering shadow of COVID-19.
The question connecting these issues is a million-dollar one: In what ways could they persist, and possibly, affect the outlook for Singapore’s property market in the coming months?
For context and insights, join us as we take a quick lookback at yesteryear’s events and their continued effects with ERA senior management team, Thomas Tan (Chief Operating Officer) and Eugene Lim (Key Executive Officer)!
What are your thoughts about rising interest rates, inflation, and the likelihood of a recession happening?
Thomas: Since 2019 and across the past 3 years, local banks have been gradually replacing the Singapore Interbank Offered Rate (SIBOR) and Singapore Dollar Swap Offer Rate (SOR) with Singapore Overnight Rate Average (SORA) as the main interest rate benchmark in Singapore.
During this same period, we’ve seen the 3-month SORA rise by over two-fold. Looking at historical data from the Money Authority of Singapore (MAS), we can see that the 3-month compounded SORA was approximately 1.46% p.a. on 4 Jan 2019, and as of 27 Dec 2022, it’s now at 3.14% p.a.
If we were to look at the SORA changes through the lens of a 1-year period, this trend of rising interest rates is even more apparent. On 4 Jan 2022, the 3-month compounded SORA was roughly 0.19% p.a., so the present rate of about 3.14% p.a. represents an increase of about 3-percentage points over the past year.
Based on these trends and the expectation that we won’t be returning to near-zero interest rates any time soon, my personal advice to homeowners – especially first-time buyers and HDB upgraders – is to be prudent with financial leverage as well as the expenditure of their disposable income.
Homeowners may possibly want to take up fixed-rate home loan packages as well in order to hedge against any future hikes in interest rates.
Also, come 1Q 2023, we’ll be debuting ‘Tools’, a new feature in SALES+, our all-in-one property agent app; one of its functions will allow trusted ERA realtors to assist their clients with evaluating mortgage packages from different banks. Check it out when it’s released!
Eugene: Generally speaking, a rising interest environment isn’t all a bad thing for local consumers. Yes, it’s true that the cost of borrowing goes up for them, but at the same time, it means they will see better yields on their savings as well.
In Singapore, retail financial institutions are now offering higher returns on their fixed deposit and savings accounts, and the response has been unsurprisingly positive.
However, when looking at the big picture of the world economy, our attention comes back to inflation. The present uptick in local interest rates can be traced back to ongoing efforts by the U.S. Federal Bank to curb domestic inflation and bring it down to their target rate of 2%.
Just recently on 14 Dec, the Federal Reserve raised its benchmark interest rates for what counts as the seventh consecutive time for 2022. So, with that news comes the question: Will there be a “soft landing”?
Or in other words, is it possible to lower inflation without slowing down economic activity too much and triggering a recession? The answer, together with the effects on homebuyer affordability and property investment demand, will be apparent in 2023.
Though it’s still early days, the general consensus among analysts is that Singapore could see a slowdown in economic growth, but may avoid a full-blown recession. Because of that, we can reasonably expect activity in the Singapore primary and resale property markets to remain stable next year too.
Will the continuation of the Russo-Ukrainian war affect Singapore’s property market in 2023?
Thomas: Singapore doesn’t import many essential goods from Russia and Ukraine, so the ripple effects from the conflict have mostly been felt here as inflationary cost pressures. Take for example, rising energy prices.
After the war started in Feb 2022, Brent Crude oil (a global benchmark for oil prices) saw a series of spikes, with the cost of a barrel of oil surging to as high as US$126 in Mar 2022 on fears of Russian oil sanctions.
Combined with supply chain disruptions of essential materials, like steel, and labour crunches, Singapore’s construction industry ended up facing severe challenges on cost and manpower in 2022.
The good news, thankfully, is that these issues appear to be easing as we head into the opening months of 2023 – and with enough luck, the steady output of new homes will be able to satisfy rising appetites for residential properties in Singapore.
Eugene: If the Russo-Ukrainian conflict were to worsen in 2023, both the construction industry and residential property market in Singapore will likely continue to face inflationary pressures due to higher costs of production.
But even if this happens, I believe that local demand for housing in 2023 will not be dampened much by the spill-over effects and/or repercussions.
Traditionally, Singaporeans of all ages, including youths, have prioritised home ownership as one of their main life goals and this deeply-held culture has resulted in a high home ownership rate that’s one of the highest in the world.
Based on the latest figures available from the Department of Statistics Singapore, the home ownership rate in Singapore currently stands at 88.9%, up from 87.9% from the previous data period.
So, returning to the original question of “Will the continuation of the Russo-Ukrainian war affect Singapore’s property market in 2023?”
My answer is both yes and no. Yes, because on the supply side it could drive building costs upwards, and no, because the need for housing amongst locals is very much real – which we’ll likely see proof of in the form of strong market demand by consumers, plus continued property price appreciation next year.
What do the lingering effects of COVID-19 bode for Singapore’s real estate market in 2023?
Thomas: Even though it’s been nearly 4 years, COVID-19 is still a key global event that deserves to be talked about, but no longer for the same pessimistic reasons as before.
Now, more countries are loosening their travel restrictions, including China, which had locked down its cities during much of the pandemic due to its COVID-zero policy. Just as how this change in winds is likely to have a positive effect on the Singapore’s own tourism and retail sectors, it’s likely to prove beneficial for certain segments of the local property market as well.
For instance, with more foreigners entering the country for work and study purposes, we forecast that private home rental volumes will rise in tune with an estimated 93,000 contracts being signed in 2023.
Also, with Singapore’s rental market heating up due to rising demand, it’s likely that the HDB resale market will remain active next year, especially when the waiting time for BTO flats in 2023 are expected to be longer than the usual 3-year waiting time before the pandemic.
So, in short, if you’re a property investor and/or seller, it looks like 2023 is going to be an opportune time to reap benefits from your real estate assets – either in the form of passive income or proceeds earned from a profitable sale!
Need help navigating Singapore’s property market in 2023?
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