COVID-19 has been a catalyst for big changes in many spheres of daily life, from the rise of working from home to new trends like baking sourdough bread.
The property market, however, seems to have remained resilient after an initial slump. According to PropertyGuru’s Singapore Consumer Sentiment Study H1 2021, 56% of the people surveyed felt higher uncertainty about property prices, which was accompanied by a fall in the Property Affordability Rating by 5 points from 69 in H2 2020 to 64 in H1 2021.
In spite of the above, 49% of respondents said they felt confident about buying property in the current climate, while 7% said they were very confident. This is particularly remarkable as Singapore is in the midst of its worst recession in history, 2020 being the worst year of economic performance with a GDP contraction of 5.8%.
Here are some reasons that may explain why Singaporeans’ demand for property remains strong.
1. Low Interest Rates
The low interest rate environment might have been one factor causing the rise in private home sales in the second half of last year.
Interest rates remain low at the moment, which makes it relatively cheap to take out a home loan. Interest rates do not have a major impact on affordability, as home loans are long-term commitments that can stretch out over 20 to 30 years. Over such a long duration, interest rates are likely to eventually rise, offsetting savings made during low interest periods.
However, low interest rates can be a pull factor for those contemplating home purchases, convincing them to take the plunge in order to take advantage of more affordable loans. Low interest rates can also persuade some to borrower larger sums or take out bigger loans.
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2. Stable Property Prices
Property prices have been relatively stable in spite of the pandemic. After an initial decline, private home prices picked up in the third quarter of 2020, with purchasers going on a buying spree to pick up deals after the circuit breaker.
The resilience of property prices can persuade prospective buyers to forge ahead with their purchases instead of waiting for prices to fall. Given the market’s strong rebound after the circuit breaker, buyers have less reason to believe that there will be another slump in the property market anytime soon.
At the moment, sellers and developers remain cautious as the future of the property market is still uncertain. Those looking to sell an existing property are offering reasonable prices and seem willing to negotiate.
Developers are also being circumspect, careful not to overprice their properties. Their strategy seems effective, with new launches performing consistently well despite the recession.
3. More Cash in Hand
The pandemic’s impact on incomes has not been uniform across the board. While retrenchments spiked in 2020, those whose incomes have not been affected are likely to have more cash in hand due to the many lifestyle changes that COVID-19 has brought about.
For instance, the suspension of international travel has forced Singaporeans to abort their overseas holiday plans. Working from home has also lowered transport costs.
Socialising and nightlife have also taken a backseat in the pandemic, with curbs on alcohol sales after 10:30pm and the closure of nightclubs and karaoke lounges. For some, this has resulted in lowered spending on dining out, fashion and entertainment.
4. Large Group of HDB Upgraders
The demand for homes may be fuelled in part by HDB flat owners looking to upgrade their homes. In 2020/2021, many BTO flats purchased five or six years ago have reached or will reach the end of their Minimum Occupation Period (MOP).
44% of HDB flat owners said they intended to sell their properties soon after reaching their MOP, while 62% said they intended to upgrade to private property.
The end of the MOP is typically a popular point at which many owners sell their HDB flat and purchase a new home. The HDB Resale Price Index rose 3.1% in the fourth quarter of 2020, which bodes well for prospective sellers.
Those who manage to get a good price for their flats can find themselves with profits ranging from $100,000 to over $200,000, which can fund an upgrade to a bigger flat or the downpayment for private property.
5. COVID-19-Induced Lifestyle Changes
Apart from market movements, the COVID-19 pandemic’s ‘new normal’ may have sparked behavioural changes and new lifestyle aspirations that may motivate buyers who were originally hesitant to commit to a purchase.
For instance, working from home and home-based learning may have increased Singaporeans’ need for personal space at home, while reduced commuting may motivate some to move further away from the city core in order to enjoy a more spacious home.
For those living with their parents or in-laws, the increased time spent together at home might also generate a greater desire for personal space and motivate them to move out.
Conclusion
The COVID-19 pandemic has had dire consequences for the economy, but that has not dented demand for residential property.
Market-related factors such as low interest rates and stable property prices have encouraged buyers to continue to enter the market. In addition, the expiry of a large number of HDB flats’ MOPS in 2020 and 2021 may raise the number of upgraders in search of new homes.
Certain behavioural and lifestyle changes sparked by the pandemic, such as working from home, lack of overseas travel, lowered spending and more time spent at home, may also motivate some Singaporeans’ decisions to buy property. In that respect, the pandemic itself may play a part in fuelling demand for property in the year to come.
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