URA Flash estimates – 2Q22 property prices accelerated q-o-q.
- Residential prices likely accelerated in 2Q22, led by homes in the RCR and landed properties
- Government likely to stand pad for now; no further cooling measures anticipated (yet)
- Higher mortgage rates a natural cooling mechanism, every 1% rise in mortgage rates will translate to S$500/mth commitment for a S$1m loan
- Property with strong attributes to continue selling well; project launches in 2H22 could see drop off in sales momentum.
URA released flash estimates this AM. Property prices in Singapore remain on an uptrend with the overall Property price index up 3.2% increase in 2Q22 after a more modest 0.7% increase in 1Q22. After a brief respite in 1Q22, we saw all property segments reporting an uptick in 2Q22 led by homes in the Rest of Central Region (“RCR”) which was + 6% followed by landed properties (+2.9%). Homes in the Core Central Region (“CCR”) and the Outside Central Region (“OCR”) rose by 1.6% and 1.7% respectively.
Our thoughts.
Government likely to stand pad for now. We do not anticipate further moves by the government for now after the introduction of cooling measures in Dec’22. While December appear to be a distant memory for now, we believe that given the economic uncertainties (rising mortgage rates, economic slowdown), the government will likely wait-out in the 2H22 to see the property price performance before deciding on any further measures (if any). At this point, we believe a moderation in price increases (or flattening out in 2H22) on the back of rising mortgage rates, where higher mortgage commitments will likely crimp demand in the midst of higher costs of living due to inflationary pressures.
Rising mortgage interest rates a natural cooling mechanism for the property market. While historically not shown to have any clear correlation, we note that mortgage rates have risen fairly quickly in recent months. We note that new fixed rates are offered at between 2.75%-3.0% while floating rates are in the region of 2.3%-2.5%, this is more than 100 basis points higher for mortgage rates offered in 1Q22. Overall mortgage rates are expected to head higher with the base SORA rates expected to hit 2.55% by end of 2023.
While projects with good attributes will likely continue to attract buyers, we believe that going into 2H22, the strong sales momentum (sell through rates in excess of 75% at launch weekend) seen in recent project launches (Picadilly Grand, Liv@MB) may not be the base case going forward. We envision that the higher commitment rates ( +1% will result in S$500/monthly for every S$1 million dollar , 25-year tenure loan) will make buyers do a double take in their property purchase decisions. Overall, we expect investment demand will likely trail off further as rates rise further in 2H22.