Time to Enter the Market? Global Prime Residential Prices Drop, Singapore Records Second-Largest Decline in Asia-Pacific

Weighed down by high interest rates and a subdued economic outlook, prime residential property prices across several major global cities are projected to soften this year. Among them, Singapore's prime private home prices are expected to decline by 2% to 3.9%.

According to a report, six of the major cities projecting prime residential price declines this year are in the Asia-Pacific region. Hong Kong is expected to see the sharpest fall of not less than 10%, with Singapore following in second place. Across the 30 global cities monitored, prime residential prices are projected to grow by an average of 0.6% this year, moderating from last year's 2.2% increase.

The introduction of property cooling measures in April last year effectively curbed price growth for Singapore's prime private residences. The 60% Additional Buyer's Stamp Duty (ABSD) levied on foreign buyers brought an immediate chill to the segment. Nevertheless, analysts remain sanguine about the long-term trajectory of these prime homes.

Data released by the Urban Redevelopment Authority (URA) in late January showed that among non-landed private home price increases last year, the Core Central Region (CCR)—which represents high-end luxury residences—rose by 1.9%. This was substantially lower than the Rest of Central Region (RCR), representing mid-tier homes, and the Outside Central Region (OCR), representing mass-market homes, which grew by 3.1% and 13.7% respectively.

Although buying sentiment for local luxury homes has been dampened by ABSD, the relatively limited supply in this segment provides downside price support. With new prime residential supply tapering off from 2025 onwards, prices are likely to stabilise swiftly.

A softer market presents an opportune window for high-net-worth individuals (HNWIs) to acquire prime properties in prime districts, with affluent families seizing the chance to invest for future generations.

Among other Asia-Pacific cities seeing prime home price declines, apart from Seoul, the rest are situated in mainland China, with drops of up to 1.9%.

Wave of Chinese Developer Defaults Plunges Sector into Winter

Since 2020, the Chinese government has rolled out a series of policies to rein in property speculation, ushering the local real estate sector into a phase of deep adjustment. A string of defaults among Chinese property developers has plunged the entire industry into a deep freeze. Prime residential prices in cities such as Guangzhou, Hangzhou, and Shenzhen could register declines this year.

Conversely, buoyed by the growing HNWI population, Sydney and Dubai are projected to be the top two outperformers over the coming year. In Sydney, the supply crunch in prime residential housing is expected to persist into 2024, driving prime home prices up by an estimated 8% to 9.9%.

Outside the Asia-Pacific region, San Francisco in the US is projected to see the steepest decline in prime home prices, with drops between 2% and 3.9%. Furthermore, New York, Los Angeles, London, Berlin, and Paris could see declines of up to 1.9%.

The report also noted that markets with relatively lower price points compared to the rest of the world could perform better this year. Prime residential prices in Cape Town, Barcelona, Madrid, and Kuala Lumpur are all below US$800 (approx. S$1,068) per sq ft, and they could emerge as the four fastest-growing prime residential markets.

Singapore Private Home Rents Could Drop 5% This Year

Economic headwinds coupled with a wave of new private residential completions could bring an end to three consecutive years of rental growth, with local private home rents poised to fall by up to 5% this year.

Another report highlighted that while significant hikes in property tax have made landlords reluctant to lower rents, strong economic headwinds and around 18,000 newly completed private homes could lead to a decline of up to 5% in non-landed private residential rents.

The report noted that while local private residential rents climbed by an average of 4.8% year-on-year last year, this was lower than the 6% recorded the previous year. Mid-tier homes saw the largest rental increase at 5.3%, while mass-market and high-end homes rose by 5% and 3% respectively.

Rental momentum already showed signs of fatigue in the fourth quarter of last year, with islandwide rents slipping by 1.55% quarter-on-quarter. Among them, mass-market homes saw the steepest decline of 2%, while high-end and mid-tier homes fell by 1.5% and 0.8% respectively.

In terms of unit types, four-bedroom units recorded the largest drop in median rent in the fourth quarter at 3.9%, followed by one-bedroom and three-bedroom units, which decreased by 1.8% and 1.7% respectively.

The overall rental decline in the fourth quarter narrowed full-year rental growth. Last year's overall rental gains were predominantly driven by accumulated demand from the first half of the year. Although higher property taxes this year may cushion the pace of rental decreases, non-landed private home rents could decline by 5% year-on-year amid prevailing economic headwinds.

Even as inflationary pressures ease gradually this year, mortgage rates will likely stay elevated for an extended period. The combination of global macroeconomic weakness and high interest rates will prompt prospective buyers and sellers alike to adopt a wait-and-see stance.