Are Mass-Market Condos the Key to Property Market Stability?

As of the end of the first half of 2023, private non-landed residential properties in Singapore's Outside Central Region (OCR)—also known as the mass market segment—accounted for approximately 46% of the national stock, or 149,498 units. The Rest of Central Region (RCR) and Core Central Region (CCR) accounted for 31.7% and 22.3%, respectively.

Over the past few years, from Q1 2017 to Q2 2023, the proportion of non-landed private residential homes in the OCR has remained relatively stable. Data from 2017 to 2023 shows that a substantial 46.4% of total transaction volume came from homes traded in the OCR. Thanks to buyers' familiarity with the suburban neighbourhoods and relatively accessible price points, OCR homes have traditionally been favoured by HDB upgraders.

Consequently, any significant swing in transaction volumes and prices in the OCR can have far-reaching effects on the broader property market. Ensuring a stable supply and price trajectory for non-landed residential homes in the OCR is paramount to overall market stability.

The government maintains stability in the property market by managing land supply, implementing property cooling measures to curb speculative buying, and enforcing macroprudential measures to mitigate systemic financial risks.

In the first half of 2018, when private home prices in the OCR surged by 8.7%, the government rolled out measures such as raising the Additional Buyer's Stamp Duty (ABSD) and tightening Loan-to-Value (LTV) limits to rein in escalating prices.

OCR home prices dipped marginally by 0.1% in the following quarter (Q3 2018) before embarking on a more sustainable pace of growth in subsequent quarters.

When home prices outpaced economic fundamentals in 2021, 2022, and 2023, the government not only raised ABSD rates further but also introduced tighter financing rules, such as lowering the Total Debt Servicing Ratio (TDSR) threshold and raising the medium-term interest rate floor. In December 2021, the authorities also announced plans to ramp up housing supply to meet demand.

The collective sale (en bloc) cycle that kicked off in 2017 and tapered off in 2018 injected an estimated 10,000 additional private residential units into the OCR redevelopment pipeline across those two years.

In response, the government pared back the supply of private residential units released under the Government Land Sales (GLS) programme by around 50%. In 2018 and 2019, GLS sites yielded an average of approximately 1,200 units per year, down sharply from more than 2,500 units released in 2017.

Between 2017 and 2020, collective sales and GLS land tenders ensured a steady pipeline of new private homes launched in the OCR, ranging between 4,000 and 5,000 units annually.

However, the onset of the pandemic introduced unprecedented economic uncertainties, prompting the government to further scale back the OCR private residential supply under the GLS programme to 680 units in 2020—likely the lowest level on record.

When the economy rebounded strongly with 7.6% growth in 2021, housing demand staged a robust recovery. The combination of an acute shortage of new home supply and strong pent-up demand set the stage for an overheated market.

Private property prices in the OCR surged by 8.8% in 2021 and another 9.3% in 2022. This prompted fresh rounds of cooling measures in December 2021 and September 2022. To meet escalating demand, the GLS supply for OCR sites was increased by 134% in 2021, yielding an estimated 1,590 private residential units. In 2022, OCR GLS land supply climbed a further 76% to 2,790 units.

In 2023, the OCR land supply under the GLS programme reached a 10-year high of 3,455 units. Given that there is typically a lead time of at least 12 months between land tender award and project launch, the number of new private residential units launched for sale in the OCR fell sharply, hitting a trough of just 1,669 units in 2022—a direct consequence of the subdued land sales during the pandemic years.

The ramp-up in OCR land supply across 2021 and the first half of 2022 paved the way for more new launches in 2023. Between January and September 2023, an estimated 1,716 new private residential units were launched for sale in the OCR.

More than 500 additional units in the OCR are slated for launch in Q4 2023, with key projects including Hillhaven, Hillock Green, and J'den.

Hillhaven is a 341-unit development in the Hillview private residential enclave, located just a short walk from Hillview MRT station. 

Hillock Green is a 474-unit development in the emerging Lentor private residential precinct, situated directly opposite an upcoming shopping mall and Lentor MRT station. 

J'den, a redevelopment of the former JCube mall, is a 368-unit project situated right in the heart of Singapore's second Central Business District at Jurong Lake District.

These launches are expected to bring total new units launched in the OCR to over 2,000 units in 2023. While this is higher than the 1,669 units in 2022, it remains well below the 2,951 units in 2021 and the 2017–2020 annual average of 4,000 to 5,000 units.

However, this increase in supply comes against the backdrop of moderating sales velocities at recent new project launches.

The mass market has historically relied heavily on HDB upgraders. Yet, in recent years, both the volume and proportion of buyers with HDB addresses have declined. Buyers with HDB addresses accounted for nearly 50% of new home sales in 2017. According to transaction data up to August 2023, this share has fallen to just 20.5%. A similar trend has been observed in RCR and CCR homes.

The turning point likely occurred on 16 December 2021, when the government raised the ABSD rate for second residential properties to 17%. Factoring in the 25% minimum cash/CPF down payment and the Buyer's Stamp Duty (BSD) of up to 4%, an HDB upgrader buying a new private home before selling their existing flat must effectively cough up nearly 50% of the purchase price in cash and CPF upfront.

Previously, many upgraders would sell their flat first and rent a temporary home or stay with parents and relatives. However, the pandemic upended such plans. With work-from-home arrangements becoming the norm, families required more space, leading to a tight rental market and skyrocketing rents. Another alternative is purchasing a new Executive Condominium (EC) unit. However, ECs come with strict eligibility conditions, leaving many HDB upgraders ineligible.

The current market dynamics are far from ideal; over the long run, they could stifle housing upgrading aspirations and potentially impact the stability of the mass-market residential segment.