Singapore Property Market Overpriced or Undervalued?

If you’re keeping an eye on real estate in Singapore for 2024 and 2025, you might be thinking the market is out of reach, with house prices already at sky-high levels. It’s easy to understand why—Singapore consistently ranks as one of the most expensive property markets in the world. Yet, the interesting twist is that many analysts believe that, despite its high cost, Singapore’s real estate market may actually be undervalued. How is that possible, and what can we expect in the next few years? Let’s break it down.

Why Are Singapore’s Property Prices So High?

Singapore is a global financial hub, and that alone plays a big role in its steep property prices. It’s Southeast Asia’s most prominent financial center, often compared to cities like Hong Kong and Zurich. But more than that, Singapore is small—really small. The city-state’s population density exceeds 8,000 people per square kilometer. This limited space drives up demand, which in turn pushes property prices higher. Compare this to countries with much more land, and you start to understand why Singapore’s market operates in its own league.

Adding to this, Singapore is one of the wealthiest nations in the world, with a GDP per capita of over $90,000. In such a wealthy, space-constrained environment, high property prices are almost inevitable. Combine this with rising costs for construction materials and labor, largely due to global supply chain issues and inflation, and it’s clear that prices aren’t just high—they’re likely to continue climbing.

The Impact of Lowering Interest Rates

While interest rates had been a major factor in cooling down property markets worldwide, the situation is now changing. The U.S. Federal Reserve has signaled that interest rates may be lowered in the near future, which could create a ripple effect across global markets, including Singapore’s. Lower interest rates generally make borrowing cheaper, which could provide buyers with more financial flexibility. In fact, lower rates can drive property demand higher, as potential buyers find themselves with improved loan eligibility and lower mortgage repayments. This trend could further fuel the already strong interest in Singaporean real estate.

For property investors, the anticipated drop in interest rates presents an excellent opportunity to secure loans with more favorable terms, potentially accelerating the market’s growth. Buyers who had previously held back due to high financing costs might find this an opportune time to enter the market, adding more fuel to an already hot property sector.

Cooling Measures and Government Regulations

In response to this soaring market, the Singaporean government has been actively introducing cooling measures over the years to prevent property bubbles and keep things in check. For instance, they’ve introduced tighter loan restrictions and raised taxes like the Additional Buyer’s Stamp Duty (ABSD) for foreign buyers. These measures make it harder to purchase property for investment purposes and are designed to temper demand.

But even with these regulations, demand for new properties remains strong, especially in non-central regions. For example, prices for non-prime areas have surged, with some developments now fetching over $2,400 per square foot, a level previously unheard of. Buyers seem undeterred by high prices or government interventions, snapping up units in record time during property launches.

The fact that interest rates are expected to lower could also offset some of the effects of these cooling measures, allowing more potential buyers to access property loans. If rates continue to drop, demand might be less restricted by the government’s measures, leading to sustained or even increased market activity.

The Singapore Housing Market: A Tale of Two Segments

When discussing property in Singapore, it’s important to understand the division between public and private housing. Over 80% of Singaporeans live in government-subsidized Housing and Development Board (HDB) flats. Public housing in Singapore is considered high-quality, with many HDB flats featuring amenities like parks, food courts, and even shopping centers within walking distance.

On the other hand, private property—condominiums and landed homes—are primarily reserved for the wealthy. In fact, the ownership of private property has become something of a status symbol in Singapore. With prices for private condos in the core central region (CCR) reaching over $3,000 per square foot, it’s easy to see why private housing is often considered out of reach for the average Singaporean household.

This disparity in housing availability is a clear indication of wealth inequality, with most locals relying on HDB flats while only the upper echelons can afford private properties. Yet, demand for private homes continues to grow, fueled by foreign investors and Singapore’s ultra-high-net-worth individuals (UHNWIs). For them, buying property in Singapore is seen as a safe and stable investment, especially as regulations tighten in places like Hong Kong.

Is Singapore’s Property Market Overvalued or Undervalued?

Here’s where things get interesting: even though Singapore’s real estate is among the most expensive in the world, some analysts believe it’s actually undervalued. How can that be?

Looking at it this way, Singapore’s property market is relatively cheaper than Hong Kong’s, where prices can be double that of Singapore’s for similar properties. Additionally, Singapore has an edge over other global cities due to its strong economy, stable political environment, and strategic location. This makes it an attractive destination for foreign investors, particularly those from China who are looking for safe places to park their wealth.

With interest rates potentially falling, this market could attract even more foreign buyers. Lower borrowing costs could incentivize property purchases, especially among international investors looking for a secure market in a globally competitive city.

What to Expect in 2024 to 2028

The general consensus is that Singapore’s real estate market will continue to grow, even if at a more measured pace. Here are some key factors that will likely impact the market in the coming years:

1. Lowering Interest Rates: As mentioned, the Federal Reserve’s move to lower rates is expected to impact global markets, including Singapore. Lower borrowing costs will likely boost demand, particularly among middle-class buyers who can now afford larger loans and better properties.
2. Government Cooling Measures: The Singapore government is likely to continue introducing cooling measures to prevent property bubbles, especially if prices continue to rise at the current rate. For example, the Total Debt Servicing Ratio (TDSR) and Loan-to-Value (LTV) limits could be further tightened. However, with interest rates falling, these measures may not have as strong an impact on demand as they have in the past.
3. Foreign Investment: With China’s strict capital controls and geopolitical tensions affecting Hong Kong, Singapore could see an influx of foreign buyers looking for a stable place to invest their money. The city-state’s strong rule of law and transparent business environment make it a safe bet for wealthy foreign investors.
4. Sustainability Trends: As Singapore pushes for greener, more sustainable urban living, we could see more developments featuring eco-friendly amenities, energy-efficient designs, and smart home technologies. This trend could add another layer of appeal to Singapore’s real estate, especially for younger buyers who prioritize sustainability.
5. Supply Constraints: Singapore’s land scarcity remains a fundamental issue. The limited availability of land will continue to drive up property prices, particularly for prime locations. With population density already among the highest in the world, there’s little room for expansion without encroaching on natural reserves or reclaiming land.

Tips for Navigating Singapore’s Property Market

So, how do you approach Singapore’s real estate market as a buyer or investor in 2024 and beyond? Here are a few strategies to consider:

1. Focus on Value, Not Just Price: While Singapore’s property prices may seem steep, it’s important to look at the overall value, including the location, amenities, and long-term investment potential. A well-located condo in a desirable neighborhood may offer better returns than a cheaper unit in a less sought-after area.
2. Consider Suburban Areas: If you’re looking for more affordable options, explore properties in suburban areas or those in the rest of the central region (RCR). These areas have seen significant price growth in recent years and may offer better value compared to prime districts like Orchard Road or Marina Bay.
3. Stay Updated on Government Policies: Keep an eye on new cooling measures or tax changes that could affect your ability to purchase property, especially if you’re a foreign buyer. The Additional Buyer’s Stamp Duty (ABSD) and other regulations can significantly impact your budget.
4. Leverage Lower Interest Rates: With the prospect of interest rates decreasing, now might be the time to lock in a favorable loan. As rates drop, your ability to borrow will increase, potentially allowing you to purchase a more valuable property than you previously could.

Conclusion

Singapore’s real estate market may seem scary at first glance, with its high prices and intense demand. However, when you consider the city’s unique position as a global financial hub, its limited land availability, and its economic strength, the argument that the market is undervalued begins to make sense. As we move into 2024 and 2025, expect the market to remain competitive, with prices continuing to rise—though perhaps at a more measured pace.

For those willing to take the plunge, Singapore’s property market offers plenty of long-term potential, particularly for investors seeking a stable, high-value market. Whether you’re a first-time buyer or a seasoned investor, understanding the market’s nuances will be key to making smart decisions in this dynamic, ever-evolving environment.

Lower interest rates will likely give the market an additional boost, making it easier to secure financing and expand purchasing power, and as global uncertainties push investors towards stable markets, Singapore will likely remain an attractive destination for property investment in the coming years.