Rate cut expectations keep buyers on sidelines as private home price growth slows to 1.5% in Q1

Expectations of interest rate cuts this year have prompted more buyers to adopt a wait-and-see stance, causing local private residential price growth to moderate to 1.5% quarter-on-quarter in the first quarter, down from the 2.8% increase in Q4 last year.

According to flash estimates released by the Urban Redevelopment Authority (URA), alongside the slower pace of price growth, overall private home sales transaction volume fell by 20% quarter-on-quarter in Q1, extending the downward trend from last year. Total private residential transaction volume last year sank to its lowest level since 2016.

The decline in transaction volume was mainly weighed down by the resale market, as some buyers deferred their purchases in anticipation of rate cuts later this year, leading to a nearly 30% drop in resale private home transactions in Q1.

High interest rates and economic uncertainties have made homebuyers increasingly cautious. Furthermore, a growing pipeline of new private residential launches and completed projects has given buyers more options and time to decide, while holding out hope of securing better deals in the second half of the year following potential rate cuts.

Luxury Private Home Prices Register Cumulative 7.2% Gain

The Core Central Region (CCR), representing luxury private homes, posted the strongest price gain at 3.1%, though this moderated from the 3.9% increase in Q4 last year. The Rest of Central Region (RCR), which represents mid-tier private homes, turned around with a 0.2% uptick in Q1, reversing the 0.8% decline in the previous quarter. The Outside Central Region (OCR), representing mass-market private homes, recorded a modest 0.4% increase, slowing sharply from the 4.5% jump seen in the preceding quarter.

Muted price growth across the mid-tier and mass-market segments weighed on overall private home price growth. Over the past nearly three years, both segments had outpaced luxury properties in price appreciation, but this dynamic has shifted over the past six months. From October last year to March this year, luxury private home prices logged a cumulative gain of 7.2%, outpacing the 4.9% increase in mass-market homes, while mid-tier properties edged down by 0.6%.

Last year, quarterly resale transaction volumes for luxury private homes held largely steady, while new luxury home sales continued to soften. This indicates that resale demand contributed more significantly to luxury price appreciation compared to the new home market.

For the full year, however, luxury private home prices registered the lowest increase last year at 1.9%, compared to 3.1% and 13.7% gains for mid-tier and mass-market private homes, respectively.

Impacted by the hike in Additional Buyer's Stamp Duty (ABSD) for foreigners to 60%, the number of foreign buyers in the luxury segment has dwindled. Nonetheless, many Singaporeans and Permanent Residents (PRs) continue to show keen interest in prime CCR residential developments, particularly those located close to reputable schools and offering sound investment potential.

Full-Year Private Home Price Growth Expected to Trail Last Year's Pace

Looking ahead, analysts believe that underpinned by rate-cut expectations and more new launches coming to market, local private residential prices will rise at a steady pace, although the overall full-year price growth may trail that of last year.

Demand for new private homes is expected to stay resilient, with six to nine large-scale developments of over 500 units slated for launch this year, suggesting that new home sales could top 1,000 units in certain months. By comparison, there were only six such mega launches last year and just one the year before.

Should interest rate cuts materialise in the coming months, buyer sentiment is likely to pick up in the second half of the year, with overall private home prices projected to rise between 3% and 6% this year.

Developers are expected to roll out sensitive, attractive pricing strategies to drive take-up, but with land and development costs remaining elevated, sharp price cuts for new launches are unlikely. Analysts project full-year private home price growth to range between 3% and 5%, lower than the 6.8% increase recorded last year.

Given the prevailing property cooling measures and ongoing geopolitical tensions, growth in private residential transaction volumes is anticipated to remain capped, hovering between 18,000 and 20,000 units, broadly in line with last year's performance.