Price growth accelerated in 2Q22
- Raise our forecast for Singapore’s private home price growth to come in at 6-8% in 2022
- Maintaining projections for new primary residential sales volume to range between 8k and 10k units in 2022, which translates to a decline of 23-39%
- Household balance sheets still solid, although affordability likely weaker given fast-rising interest rates
Singapore’s private home prices rose 3.5% quarteron-quarter (QoQ) in 2Q22, based on the URA Private Residential Property Price Index (PPI). This was an acceleration from 1Q22’s 0.7% increase. The URA Private Residential PPI has now increased by 4.2% from end-2021 level. We had mentioned previously that we expected the private residential market to remain resilient, but the current run-rate is tracking ahead of our expectations. As such, we raise our forecast for Singapore’s private home price growth to come in at 6-8% in 2022, versus 1-3% previously. Comparatively, within the public housing market, Singapore’s Housing Development Board (HDB) Resale Price Index grew 2.8% QoQ in 2Q22 (1H22: +5.3% from end-2021), such that the premium between private and public housing prices stood at 10.4%, as at 30 Jun 2022. If we compare quarterly year-on-year (YoY) changes in Singapore’s private home prices and GDP growth since the 1990s, we note that the former has historically been negative when real GDP contracted. The only exception was during the Covid-19 induced recession in 2020, in which home prices still grew despite economic contraction. Singapore’s Ministry of Trade and Industry (MTI) expects Singapore’s economy to grow by 3.0% to 5.0% in 2022, with growth likely to come in at the lower half of the forecast range. It expects growth to moderate further in 2023 but is not expecting Singapore to slip into a recession or stagflation in 2023 at this juncture. Notwithstanding this, we believe the macroeconomic environment remains uncertain and we will continue to keep a watchful eye on economic developments in the region.
Although private home prices have remained resilient and growth is still positive, volumes have been much weaker. The number of private new home sales (excluding Executive Condominiums (ECs)) fell 19.2% YoY to 2,397 units in 2Q22, although this is up 31.3% QoQ. For 1H22, the total number of units sold in the primary market slipped 34.6% YoY to 4,222 units. We are maintaining our projections for private new residential sales to come in at 8k – 10k units in 2022, which implies a forecasted growth range of -23% to -39%.
We believe Singapore household balance sheets remain solid, given healthy loan-to-value (LTV) ratios and low percentage of delinquent mortgages. While Singapore’s household credit profile remains healthy, affordability has likely weakened given the upward trajectory of interest rates.
The FTSE ST All-Share Real Estate Investment and Services Index (FSTREH) has delivered total returns
of 8.0% year-to-date (YTD), as at 22 Jul 2022 close, outperforming both the Straits Times Index (+4.0%) and FTSE ST REITs Index (-2.9%). From a valuation standpoint, the FSTREH Index is trading at a forward price-to-book (P/B) multiple of 0.56x (as at 22 Jul 2022 close), which is 0.7 standard deviations below the 10-year average (0.65x). Within the sector, we have a ‘Buy’ rating on UOL Group (UOL SP) and a ‘Hold’ rating on CapitaLand Investment Limited (CLI SP). (Research Team)