Owning your own home may seem unattainable with rising Singapore house prices, but have you ever wondered why is housing in Singapore so expensive?
The answer’s simple: Local property prices seem so exorbitant because Singapore is on the leaderboard of many global indexes – housing prices included. In fact, the city-state has the fifth most expensive residential market globally, according to Knight Frank’s 2021 rankings. And these prices are only going up.
Private home prices jumped 10.6% in 2021, making Singapore the second most expensive private property market in the world, according to real estate firm CBRE. Even HDB flats were not spared, with HDB resale prices jumping 12.7% in 2021.
2021 has been no stranger to record-breaking price hikes: the number of million-dollar HDB flats tripled last year, surging from 82 flats in 2020 to 261 flats in 2021. But the question remains: why does housing in Singapore remain so expensive, and increasingly so? Here are four reasons why.
1. Rising Local and Foreign Demand Push Up Singapore House Prices
The first reason explaining why is housing in Singapore so expensive is that Singapore’s small land area means that housing is always in limited supply. This, combined with Singapore’s population growth in the past years, has only been driving higher housing prices.
Build-To-Order (BTO) flats are already seeing persistent increases in demand, having jumped a whopping 70% in 2020. Supply, on the other hand, is not keeping up. In the same year, there were 87,800 applications for BTO flats, but only 16,800 flats were launched.
This discrepancy has been increasing in the years pre-pandemic and has only been exacerbated by supply-side restrictions during the pandemic. Movement restrictions and supply shortages have led to BTO projects being delayed, limiting supply in recent years even as demand continues to rise.
Amid growing demand and the reopening of borders, it’s important to factor in the rate of supply recovery, as supply and labour chains will take time to be re-established following disruptions caused by the pandemic.
Domestic demand aside, Singapore is a highly appealing destination for foreigners as well. The nation is a popular location for relocation and business investment due to its pro-business environment and political stability, according to Forbes. In fact, luxury home sales continue to rise despite the recent property cooling measures.
2. Singapore House Prices Affected by Rising Interest Rates
The past two years generally saw low interest rates due to the pandemic and other geopolitical uncertainties. This meant that housing loan rates for the past couple of years have been highly attractive.
But this trend is now reversing, with the US Federal Reserve announcing its largest rate hike in the past two decades. This is leading to a corresponding increase in Singapore’s own housing rate. In less than half a year (since December 2021), the fixed two-year mortgage rate locally has nearly doubled from 1.15% to 2.25%.
But what does this mean for prospective homeowners? Well, higher mortgage rates will inadvertently increase the total cost of a home. Take a look at the table below, for example:
| Annual interest rate | 1.15% | 2.25% |
| Loan amount | $750,000 | $750,000 |
| Loan tenure | 20 years | 20 years |
| Monthly payment | $3,499.63 | $3,883.56 |
| Total interest paid | $89,911.08 | $182,054.91 |
| Total amount paid | $839,911.08 | $932,054.91 |
For the same loan amount of $750,000, an increased interest rate will mean homeowners need to pay nearly $100,000 more! That means the increasing interest rates are pushing up Singapore house prices. It’s thus important to take into account interest rates and taking into account the long-term mortgage cost of a home before purchasing your dream house.
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3. Type and Location of Property Will Affect Prices of the Home You Buy
One of the most prominent factors determining the price of housing in Singapore is the type of property. If your dream home is an HDB flat, it will be much more affordable than a condominium or even a landed home. The average price per square foot for an HDB flat, for instance, is $507. Meanwhile, a condominium will cost on average $1,731 per square foot (psf).
Other factors that affect price are often the same ones prospective buyers consider when looking at properties — location of the property; proximity to public transport, hawker centres, and schools; remaining lease on the property; the list goes on.
For instance, a condominium unit in Paterson Suites by Bukit Sembawang Estates, which is 4 minutes away by foot from Orchard MRT station, costs $2,615.84 psf, while a similar unit at 3 Orchard-By-The-Park by YTL Westwood Properties, which is a 2-minute walk from Orchard Boulevard MRT station, is listed at $3,378.38 psf.
The location of the property also plays a role. While a BTO flat in a non-mature estate like Woodlands may be more affordable, oftentimes, these are not the ‘dream homes’ that people are aiming for. Properties in the city centre or within the heartlands tend to be much more in demand, leading to higher prices.
For example, houses on the city fringes can be much more popular than those further out from the city, leading to higher prices. In the Rest of Central Region (RCR), property prices jumped by 16.94% in 2021, as compared to a rise of 8.44% for homes Outside Central Region (OCR).
Related article: Singapore District Map: Defining the CCR, RCR and OCR by the 28 Districts
It should also be noted that the size of housing and prices will also differ according to where it is located. Global Property Guide found that in an RCR location such as Harbourfront, a condominium unit sells for approximately $2,002 to $2,831 psf. Meanwhile, units in OCR locations like Canberra only cost $1,232 to $1,579 psf.
Recognising the preference for properties in prime locations, the Government introduced the Prime Location Public Housing (PLH) model to ensure new public housing in such locations will remain affordable, accessible and inclusive in the future. This model includes measures such as an increased Minimum Occupancy Period of 10 years, subsidy recovery upon selling the flat, and an income ceiling for those who wish to purchase.
Such measures have been established to enhance the allocation of properties to buyers who are genuinely in need of public housing and discourage investment property purchasers.
4. Rising Costs of Raw Material and Labour Means Singapore House Prices Are Higher
Supply crunches due to the pandemic and war in Ukraine have led to rising material and labour costs in recent times. Developers are expressing concerns about high construction costs as a result of these factors.
This can then lead to higher prices for new properties or a delay in the building of such properties as developers try to work around the elevated labour costs. As demand continues to increase, this further strains the supply of housing in Singapore, which will also drive prices higher.
It’s notable that increased demand could possibly lead to a compromise in quality, as suppliers try to meet demand while working with limited resources. This could result in greater repercussions in the long run, as additional costs may have to be incurred to rectify quality issues.
Needless to say, renovation costs have increased over the past couple of years as well, which all contribute to the rising prices of owning your dream home.
Affordability as a Concern: What is the Singapore Government Doing?
Affordability is undoubtedly a concern for those looking to buy their dream home, especially for younger Singaporeans, and the Singapore government acknowledges this. Before you go, “Why is housing in Singapore so expensive? Is the government doing anything?” the answer is yes!
In response to the red-hot property market, property cooling measures were introduced in December 2021. These included raised Additional Buyer’s Stamp Duty (ABSD) rates for Singaporeans and PRs purchasing their second and subsequent residential properties, as well as heightened ABSD rates for foreigners acquiring residential property, potentially leading to a fall in local and international for demand investment property purchases.
Other cooling measures include reduced Loan-To-Value (LTV) limits from 90% to 85%, and a tightened Total Debt Servicing Ratio (TDSR) by five percentage points, from 60% to 55%. These measures will make it more difficult for buyers to obtain loans and mean that buyers will have to pay a higher fee upfront.
Such measures have tempered price increases in Singapore’s housing. In the first quarter of 2022, prices increased by 0.4% as opposed to the 5.0% in the final quarter of the previous year, reported the Ministry of National Development.
Still, as housing prices continue trending upwards, the prospect of owning your own place can remain daunting. But don’t fret – it can be a reality with a solid plan for your finances, from deciding what to prioritise, such as location or available amenities, to coming up with saving strategies.
This is where PropertyGuru Finance can help. Our friendly Mortgage Experts can give aspiring homeowners advice on how they can budget, choose the right housing loans, and pick the right property for their financial situation. Want to find out more? Get in touch with us today!
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