Can Private Home Prices Really Average $2,900 psf in 2030?

A recent DBS report is raising a bit of ruckus, with claims that new home prices can average $2,900 psf by 2030. After some deliberation, here’s what we think:

Where at private home prices at now?

Based on 99.co data, the average private home price is roughly $1,570 psf. This is up from an average of about $655psf, 10 years ago; an increase of roughly 140 per cent.

If we were to go strictly by these numbers, an average of $2,900 doesn’t seem that far fetched. It’s about the same length of time, and the prediction ($1,570 to $2,900 psf) is an increase of only about 84.7 per cent; even if it were to happen, that’s a far more modest increase than we’ve seen before in the past.

But as we well know, things are never quite that simple; especially if we’re going to make speculations about the property scene 11 years from now. And if there’s one thing we tend to distrust, it’s analysts putting on their Dungeons & Dragons LARP outfits and pretending to be wizards.

Here are some of the problems we foresee:

• The overly optimistic population growth projections
• The willful blindness toward how our government behaves
• The days of high rental yields and low interest are over
• We can’t find where it’s raining all that money

1. The overly optimistic population growth projections

The report speculates that our population growth can reach up to 6.5 million by 2030. Which is strange, because the previous other reports we’ve read – like this one from the Straits Times – suggests we’re moving in the opposite direction. From June 2016 to June 2017, population growth was 0.1 per cent. For comparison, population growth was 2.45 per cent the decade before 2017.

Also, fewer Singaporeans are getting married, and the fertility rate continues to go down. If we’re going to hit those big population numbers, then our procreation rates would need to zoom from the level of pandas to those cloning vats in Star Wars.

Or maybe, we’re going to count on immigration (instant Singaporeans, just add taxes).

That could work we guess, if immigration decides to hand out PRs cheaper than Huawei phones right now. But we all know the likely outcome of that, part of which is so many angry comments, Facebook will need a new data centre just to store the spite.

2. The willful blindness toward how our government behaves

Apparently, some analyst out there believes that when property prices spike, the Singapore government’s likely reaction is to sit up and clap like an amused seal. What in our recent history gave this impression?

Was it when property prices last peaked in 2013, and the Singapore government hit the market with so many cooling measures that souls in hell starting begging for jackets?

Was it in the aftermath of the en-bloc craze, when Development Charges mounted and a year later loan curbs tightened?

How often has the government intervened to moderate home prices? Let us count the ways: Sellers Stamp Duties, higher Buyers Stamp Duties, higher Additional Buyers Stamp Duties, tighter debt servicing ratio, higher minimum down payments, prevention of decoupling for HDB flats…if we put the same amount of effort into reversing climate change, the dinosaurs would be back by now.

So if prices start to average $2,900 psf, imagine the kind of cooling measures we’ll probably see. 30 per cent ABSD maybe; or a few live-landmines in front of every showroom flat.

3. The days of high rental yields and low interest are over

Most rental yields nowadays (for residential property) are at 2.5 per cent. At the same time, home loan interest rates have crept up to an average of two per cent.

When you add on property taxes, maintenance, and all the other costs, many landlords can no longer cover the costs with rental income alone (which is why more are turning to commercial property, and genuine home buyers are wearing smiles wider than a dead cockle).

This is just the start of it.

Back in the property heydays of 2009 to 2013, the US was recovering from the financial crisis by setting interest rates to zero. As a consequence, interest rates plunged in Singapore, to the point where bank home loans have been even cheaper than HDB loans for about 10 years. As the US recovers however, the interest rate is slowly being normalised. As a result, mortgage rates in Singapore will rise, compounding the issue of already low rental yields.

(There may be some temporary reprieve in rate hikes due to American leadership i.e. Reality TV, but this is not likely to persist over the coming decade. Artificially maintaining low rates risks runaway inflation for America.)

Add on the high stamp duties, and it’s likely that investors may start looking for alternative places to park their money. We still say genuine home buyers have an upper hand, and there’s too much downward pressure on property prices.

4. We can’t find where it’s raining all that money

For property prices to rise, incomes have to as well. So, let’s go back to our initial statement:

Based on 99.co data, the average private home price is roughly $1,570 psf. This is up from an average of about $655psf, 10 years ago; an increase of roughly 140 per cent.

Now this may amaze you, but it turns out 140 is a much bigger number than 1.9  (real income growth between 2008 and 2013), and even 3.5 (real income growth between 2013 and 2018). Perhaps, to visualise the situation better, consider this: at $2,900 psf, a four-bedroom, 1,400 square foot condo will cost over $4 million.

Now it’s not impossible for property prices to grow faster than income; we’ve seen that. But there are limits to how far this can go, before average property prices hit a ceiling*. So again, $2,900 psf is looking way too optimistic, given our wage growth.

*Pun intended and copyrighted by 99.co

Is it possible? Yes. But is it implausible?

Given how things look right now, we’d also say yes.

The simple biggest factor at play – the same one as its always been – is government policy. For so long as the government doesn’t want property prices to overheat, big surges like we saw in the old days aren’t going to happen.

This doesn’t mean you can’t find the occasional property that may appreciate this well – but such properties are going to be harder to find. They’re likely to be scarce, excellent buys that you need a lot of luck and acumen to pick. Barring big shifts in government policy, similar leaps are not likely to happen for the bulk of the market.

Do you think prices can rise to $2,900 psf by 2030? Voice your thoughts in our comments section or on our Facebook community page.

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