Singapore housing market fairly valued: UBS

Home prices are still 5% below their 2011 peak.

An unrelenting regulatory stance has reined in Singapore's residential prices from spiralling out of control as the city state ranks amongst the world's major cities with a ‘fairly valued’ housing market, according to the UBS Global Real Estate Bubble Index 2018.

“[I]n Singapore, overall house prices have stayed pretty much the same since 2012,” the Swiss bank said in a report. “Valuations still managed to inch up but the city remains in fair-valued territory.”

Although inflation-adjusted prices rose 9% in the past four quarters after six years of correction, housing affordability has actually improved in the Lion City over the past decade unlike other major world cities like Hong Kong, Munich, Toronto, Vancouver, Amsterdam and London whose residential markets are all in bubble risk territory.

Home prices in Singapore are still 5% below their peak in 2011 and price-income ratio is still shy of its long-term average. “There has been no difference between house price and income growth in Singapore over the last 30 years,” the report’s authors noted.

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The cumulative average income growth in Singapore over the past five years is over 15% while residential property prices are 3% lower, data from JLL show. The home price to income ratio of 4.8 years is also lower than the estimated 7.3 years in 2010.

In a show of growing affordability, it only takes around 12 years for a skilled service worker to be able to afford a 60 sqm (650 sqft) flat near Singapore's city center compared to the 16 years it would have taken the same worker to afford the same-sized flat in 2008, noted UBS. 

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Contrast this with Hong Kong where wages fail to keep pace with skyrocketing property prices as it takes a worker 22 years just to be able to afford a 650 sq ft home although the process took only 12 years a decade earlier.

Part of the reason behind Singapore's fairly valued housing market is an adept policy stance adopted by regulators to clamp down on any burgeoning speculative risk, the Swiss bank observed. “Overall, the consequent stalling of any price rebound by the government prevents the emergence of speculative tendencies in the real estate market.”

The government raised the Additional Buyers Stamp Duty (ABSD) rates for individuals by 5 ppt and 10 ppt for entities and tightened Loan-to-Value (LTV) limits by 5 ppt last July after private home prices rose by 9.1%, which has raised concerns about growing interference from property groups.

Also read: Property curbs may compel developers to reprice projects

"The property market should be allowed time to find its own course and reach a sustained equilibrium," the Real Estate Developers Association of Singapore (Redas) said in an earlier statement following the curbs. "Developers are concerned about the distortionary effects of such market behaviour over the medium and long term.”

Of the twenty major cities in the index, only Chicago's housing market is undervalued. Boston and Milan join Singapore in the fairly valued territory whilst Stockholm, Paris, San Francisco, Frankfurt, Sydney, Los Angeles, Zurich, Tokyo, Geneva and New York are overvalued.