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  • Property market outlook remains uncertain, with more modest property price growth in recent decades
  • Changing demographics and an ageing population likely to weigh on long-term housing demand
  • Evidence of stretched affordability in recent years, with upgraders buying smaller homes
  • Property price growth outpacing GDP and salary growth could have lasting impacts on affordability
  • Diversification is key; crucial to look beyond property to achieve a holistic financial plan
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Property alone may not be enough. Property, as a wealth accumulation strategy, worked well for earlier generations of Singaporeans. However, what may have worked for our parents may no longer be sufficient for us. The outlook of the property market remains uncertain, given the more modest property price growth in recent decades. While we note a recent upswing in buyer sentiment, especially from upgraders, we remain watchful of the pace of increase in the private property price index (PPI) and HDB resale index – which rose approximately 7% and 11%, respectively, over the past year despite the COVID-19 pandemic – on the back of the government’s continued hawkish stance on the property market.

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Changing demand for homes. Although owning a property is deeply ingrained in our society, for individuals considering a second property, it is important to consider Singapore’s changing demographics amid an ageing population and tighter manpower policies. These factors may weigh on the longer-term demand and rental yield for residential properties. 

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Increase in property prices outpacing salary growth. The resilience in the property market over the past few years has been noteworthy, though some are beginning to question the sustainability of the growth in property prices and its implications on overall housing affordability. We have seen the pace of increase in property prices outpace that of gross domestic product and salary growth, raising the risk of froth building up in the property market. By leveraging publicly available data (e.g., SingStat) and studying the anonymised database of approximately 1.2m of the bank’s customers, we found evidence of stretched affordability ratios in recent years, with upgraders buying smaller homes. We also found that affordability tends to be the most stretched among the lower-income and in the 30-49 age group. These trends highlight potential concerns about Singaporeans’ ability to reach their retirement goals. 

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Importance of diversification. Rather than putting all your eggs in one basket (i.e., mainly in property), consider growing your net worth through a diversified portfolio. We believe the inclusion of other asset classes such as equities, REITs, and more will form a more balanced strategy in achieving your financial goals. After studying the total returns of different asset classes since 1Q09, we found the S&P500 and Singapore REITs exhibited the highest growth in invested capital, followed by property assets. While property will no doubt continue to serve as a key retirement asset for many households, the adage attesting to property as a golden egg may be increasingly challenged given Singapore’s changing demographic trends. Diversification is key; it is now pivotal for individuals to look beyond property to achieve a holistic financial plan.