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When it comes to global real estate markets, there are truly few destinations as hot as Singapore right now – but why might that be?
The passport power of a Schengen-zone European nation that scored as the second most powerful on the 2023 passport index? Deep-rooted trade connections with nearby China, Japan, and almost every other SE Asian nation? Their English-speaking population, remarkably low crime rates, or the renowned urban beauty of the city? You can only wonder.
But causation aside, let’s look at the headline: Investors are jumping onto any property they can get their hands on in Singapore. Excluding a brief drop in sales during the end of 2022, real estate investment deals in the country were up 20.4% across the year as a whole – sealing away an annual total of S$31.9 billion in their property market.
The short-term rental market in particular has seen a booming increase in recent times. A sharp uptake in tourism, sparked by the reopening of the country as a tourist destination in the wake of the COVID-19 pandemic, reopened Singapore’s gates to visitors from around the world once again. However, like so many other cities across the globe, high-value short-term rentals can often have drastic effects on the locals, with younger, less wealthy renters being priced out almost entirely. And while the more fortunate young professionals are able to take full advantage of newer developments, often centered around a new trend of coliving spaces and other innovative residences, the poorer half of Singapore faces an even tougher housing challenge.
A growing wealth inequality in the country has seen striking discontent among regular families – or rather those who make up the vast majority of middle to low incomes in the nation. In a recent survey, 81% of Singaporeans stated they were worried about the growing income divide, with around 7 out of 10 feeling that it has worsened particularly over the last five years.
To paint a clear picture of the issue, let’s illustrate it like this: Singapore has a population of about 5.5 million. Of this total, there are about 270,000 millionaires in Singapore – but on the other side of the social ladder, 792,000 adults have less than just $13,500 in total wealth.
But how much are foreign investors who snatch up real estate to blame for this problem? Well, it seems that the answer is not very much at all.
This is because Singapore’s Land Authority, as well as the Housing and Development Board (or HBD) limit the types of properties a non-Singaporean national can lease or buy. Not only do foreigners have to have been a resident of Singapore for a minimum of five years, but the process is made even more difficult with added red tape – like a strict ‘exceptional economic contribution’ requirement, that’ll be certain to take a good look into your tax and income affairs before authorizing a purchase.
Plus, foreigners are limited to certain Executive Condominium (EC) and Private Condominium (PC) purchases, leaving the HBD properties for locals looking to get onto the housing ladder as part of a sort of social housing program.
As you can see above, the terms that saw the highest growth in search volume when comparing 2022 to 2021 were ‘apartment buildings’ and ‘downpayment for hbd’ (again referring to the social housing projects), with both search terms rising by just over 30%. On the flipside, searches for ‘buying resale’ and ‘hbd valuation’ both fell by almost 20% each, suggesting a plummet in those looking to sell their HBD properties in the current real estate market.
Whether these owners have changed their plans, and now hope to hold onto their property for it to increase in value, is open to speculation.
In terms of commercial real estate in the country, this sector too has unsurprisingly seen a huge increase in demand over the last few years. It remained resilient as a whole during and in the wake of the COVID-19 pandemic, with commercial real estate sales doubling in Q1 of 2022 when compared to Q1 of the previous year. However, unlike residential properties, foreigners are free to purchase and lease commercial real estate in the country. The most popular types of these properties are hotels, offices and retail malls.
But while it is in the nature of business owners to take risks with increasing costs of overheads, and plan work-arounds to ultimately turn a profit, the outlook for regular Singaporean families in their regular rental properties is becoming bleaker. One of the most recent studies into rent-to-income rates in the city listed Singapore to have a 5.8 ‘median multiple’ – which is classed as ‘severely unaffordable’, as these tables show below.
Looking to the future, while Singapore’s overall GDP is predicted to slow as a whole by 2.3% across 2023, the rental market is forecasted to hold strong – with, for instance, a predicted 5% rise in private home prices. Bloomberg analysts predict that the rental prices are also set to rise by a further 10-15% during the year – although some skeptics are certain that a market correction is on its way.
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