Singapore Residential Sector - Price growth accelerated in 2Q22
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Equity Research
25 July 2022
Sector update
Singapore Residential Sector
– Price growth accelerated Research Team
in 2Q22
Singapore | Real Estate
Investment summary
Singapore’s private home prices rose 3.5% quarter-on-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).
• 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
1Equity Research
25 July 2022
Private residential property price growth accelerated in 2Q22 to
3.5% QoQ
Singapore’s private home prices rose 3.5% QoQ in 2Q22, based on the URA Private Residential PPI. This was
an acceleration from 1Q22’s 0.7% increase, which had been impacted from the aftermath of the property
cooling measures introduced in Dec 2021. 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. The price increase could also have
been driven by the view that real estate can provide some hedge against inflation. 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. In terms
of price growth breakdown, landed residential property prices rose 2.9% QoQ in 2Q22, a moderation from
1Q22’s 4.2% growth (1H22 +7.3% from end-2021); non-landed home prices increased 3.6% QoQ, a reversal as
compared to 1Q22’s 0.3% decline (1H22 +3.3% from end-2021). Within the non-landed segment, home prices
in the Core Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR) gained
1.9%, 6.4% and 2.1% QoQ in 2Q21, and 1.8%, 3.5% and 4.4% in 1H22 (from end-2021), respectively.
Comparatively, within the public housing market, Singapore’s 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.
Exhibit 1: URA Private Residential Property Price Index trend
220
200
180
160
140
120
100
80
60
40
Mar 2002 Sep 2004 Mar 2007 Sep 2009 Mar 2012 Sep 2014 Mar 2017 Sep 2019 Mar 2022
CCR (non-landed) OCR (non-landed) RCR (non-landed) Landed Property
Source: URA
Keeping a watchful eye on economic outlook
If we compare quarterly 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
due to large stimulus measures by major central banks and the need for housing space during periods of
lockdowns and trend towards working from home. From 1997-1998 and 2000-2001, the quarterly YoY decline
in private residential property prices preceded the contraction in GDP. We believe this could be due to more
speculative activities during those periods as property tightening measures were less stringent as compared
to the post-Additional Buyer’s Stamp Duty (ABSD) era from 2011.
2Equity Research
25 July 2022
Singapore’s Minister of State for Trade and Industry, Mr Alvin Tan wrote in a parliamentary response on 4 Jul
2022 that the 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.
Exhibit 2: Trend of URA Private Residential Property Price Index and real GDP growth in
Singapore
60% 25.0%
50%
20.0%
40%
Home Real 15.0%
Period Price GDP
30% YoY YoY
2Q20 1.2% -12.2% 10.0%
20% 3Q20 0.7% -4.6%
4Q20 2.2% -0.9%
10% 5.0%
Home Real
Period Price GDP
0% YoY YoY 0.0%
1Q97 -2.5% 5.7% Home Real
Home Real
-10% 2Q97 -8.9% 9.5% Period Price GDP
Period Price GDP
YoY YoY
3Q97 -11.2% 10.9% YoY YoY -5.0%
4Q97 -12.4% 7.1% 4Q00 -1.0% 9.4%
-20% 1Q98 -17.5% 1.5% 3Q08 8.3% -0.1%
1Q01 -7.9% 5.4%
2Q98 -23.8% -2.4% 4Q08 -4.7% -3.4%
2Q01 -10.1% 0.5% -10.0%
1Q09 -21.1% -7.7%
-30% 3Q98 -30.7% -5.0% 3Q01 -10.2% -4.9%
4Q98 -34.0% -2.6% 4Q01 -11.7% -4.7% 2Q09 -24.9% -1.2%
1Q99 -23.3% 2.2% 1Q02 -9.1% -1.1% 3Q09 -11.0% 2.8%
-40% 2Q99 -6.4% 5.4% 2Q02 -9.0% 4.2% -15.0%
Mar-91 Oct-93 May-96 Dec-98 Jul-01 Feb-04 Sep-06 Apr-09 Nov-11 Jun-14 Jan-17 Aug-19 Mar-22
% YoY private home price change Singapore real GDP % YoY change (RHS)
Source: URA, CEIC, internal estimates
Transaction volumes in primary market down 34.6% YoY for 1H22
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 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. Given the continued appreciation in home prices, spike in borrowing costs and increased uncertainties
over the macroeconomic environment, especially coming off the back of the set of onerous property cooling
measures in Dec 2021, we believe more potential homebuyers could have adopted a wait-and-see
approach, thus translating to subdued transaction volumes. That said, we have seen recent new launches
with good product specifications and locations achieving very strong sell-through rates in their first weekend
of launch. 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%.
If we include the secondary market, private resale volumes (excluding ECs) fell 20.6% and 22.7% YoY to 4,236
and 7,613 units in 2Q22 and 1H22, respectively. Consequently, overall transaction volumes (both private
primary and secondary markets, excluding ECs) declined 19.4% YoY to 6,811 units in 2Q22 and 26.6% YoY to
12,154 units in 1H22.
3Equity Research
25 July 2022
Exhibit 3: Trend of private residential transaction volumes in primary market (excluding
ECs)
25,000 300%
22,197
250%
20,000
200%
16,29215,904
14,811 14,688 14,948
15,000 150%
13,027
11,147 10,566 -35% 100%
9,485 9,912 9,982
10,000 8,955 8,795
7,316 7,440 7,972 50%
6,459
5,156 5,785 0%
4,264 4,222
5,000
-50%
0 -100%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1H21 1H22
New private home sales ex. ECs (LHS) % YoY change (RHS)
Source: URA, Internal estimates
Exhibit 4: Overall transaction volumes (excluding ECs) for primary and secondary markets
'000
45 40.7
38.9 37.9
40
33.7 32.6 33.6
35
30 21.0 13.2
19.2
25.0 25.0
25 15.1 14.0 -27%
22.7 22.1 20.0
20.9
20 17.9 6.7
19.2
12.7 16.4 14.0 16.5
15 13.6 14.1 13.0 10.7
8.3 12.8 8.9 12.2
7.9 9.9
10 7.5 22.2 5.0 6.2
14.8 14.7 16.3 15.9 14.9 7.6
11.1 13.0
5 9.0 7.4 8.0
10.6 8.8 9.9 10.0
7.3 6.5
4.3 4.2
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1H21 1H22
Residential units sold directly by developers Sub-sales Resales
Source: URA, Internal estimates
Rental market has seen a stronger uplift
The URA Private Residential Rental Index increased 6.7% QoQ in 2Q22, such that 1H22 rental rates grew 11.2%
from end-2021. For the first half of 2022, rents of landed and non-landed residential properties rose 8.7% and
11.4% from end-2021, respectively. All non-landed segments saw low-teens growth in 1H22. Overall vacancy
rates for private residential properties inched up slightly by 0.1 percentage point (ppt) QoQ to 5.4% (as at
end-2Q22). We believe the buoyant rental market has been driven by the return of expatriates given the
reopening of borders, higher demand from locals as they await completion of their properties and jump in
borrowing costs which might lead to more people looking to rent instead of purchasing a home.
4Equity Research
25 July 2022
Exhibit 5: Rental trend of private residential properties in Singapore
135
130
125
120
115
110
105
100
95
URA Private Residential Properties Rental Index
Rent non-landed CCR
Rent non-landed OCR
Rent non-landed RCR
Source: URA
Household balance sheets still solid, although affordability likely
weaker given fast-rising interest rates
The Singapore government highlighted in a parliamentary response that the household debt situation
remains healthy, although prudence is warranted as interest rates are expected to increase in the coming
years. For example, the median Total Debt Servicing Ratio (TDSR) stood at 43% in 2021, which is still within the
threshold limit of 55%, while the proportion of delinquent mortgages was less than 1%. Furthermore, household
net wealth grew even through the pandemic, and most households should still be able to service their
mortgages even as domestic interest rates are likely to increase ahead.
Based on our sensitivity analysis, for a first-time homebuyer purchasing a SGD1.5m residential property with a
loan-to-value LTV of 75% and taking a 25-year loan tenure, we estimate that every 50 basis points (bps)
increase in borrowing costs will raise the buyer’s monthly mortgage payment by approximately 6%. For
example, if a homebuyer was previously paying a mortgage rate of 1.5% and if this increases to 3%, the
monthly mortgage would increase ~SGD860, or 19%. Hence, while Singapore’s household credit profile
remains healthy, affordability has likely weakened given the upward trajectory of interest rates. The Singapore
Overnight Rate Average (SORA) benchmark rate has increased 148bps YTD to 1.77% (as at 22 Jul 2022), which
will ultimately pull up the 3-month compound SORA which has a lagged effect.
5Equity Research
25 July 2022
Exhibit 6: Average LTV ratio and non-performing loan (NPL) ratio of housing and bridging
loans
% %
0.6 53.6 55
0.5
50
0.4
0.33
45
0.3
44.1
0.2 40
1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20 1Q21 1Q22
NPL Ratio (housing and bridging loans) Average LTV (RHS)
Source: MAS, CEIC, internal estimates
Exhibit 7: Trend of SORA and 3-month SORA
%
2.4
2.0
1.6 1.77
1.2 1.12
0.8
0.4
0.0
Dec 2021 Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 Jul 2022
SORA Compound SORA - 3 month
Source: MAS
Exhibit 8: Sensitivity of monthly mortgage payments to interest rate (first home with 75%
LTV)
Interest Rate
1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
15 SGD6.76 k SGD7.03 k SGD7.30 k SGD7.57 k SGD7.85 k SGD8.14 k SGD8.43 k
Loan tenure
20 SGD5.20 k SGD5.46 k SGD5.73 k SGD6.01 k SGD6.30 k SGD6.60 k SGD6.90 k
(years)
25 SGD4.26 k SGD4.52 k SGD4.80 k SGD5.09 k SGD5.38 k SGD5.69 k SGD6.00 k
30 SGD3.63 k SGD3.90 k SGD4.19 k SGD4.48 k SGD4.78 k SGD5.10 k SGD5.42 k
35 SGD3.19 k SGD3.46 k SGD3.75 k SGD4.05 k SGD4.36 k SGD4.69 k SGD5.02 k
Source: Internal estimates
6Equity Research
25 July 2022
Unsold inventory increased but still low compared to historical
trend
Supply dynamics are also still largely supportive of the private residential property market. Unsold inventory
of both completed and uncompleted units increased 12.0% QoQ to 16.1k units, as at 30 Jun 2022.
Notwithstanding the increase, current unsold inventory levels are still 47.4% below the historical average since
2007 and near historical troughs, while part of the reason for the increase in unsold inventory was due to a
51.7% bump in stock which has yet to meet the pre-requisites for sale (62.2% of overall unsold inventory). We
also note that the number of launched but unsold units fell 11.7% QoQ to 2.8k. This was the fifth consecutive
quarter of decline. During the global financial crisis, Singapore’s unsold inventory levels stood above 40k units
from 1Q08 to 1Q09, which is well above current levels. Hence, even if Singapore slips into a recession in 2023,
we believe the supply situation will be much better as compared to the past.
Exhibit 9: Unsold inventory in the private residential market has started to increase but still
low compared to historical trend
'000
50
44
45 44 4444
43
4040
39 39
40 3839 38 3837 38
36 36
3535
343434 34 34
35 33 33 34 34 33
3232 32
31 31 Long-term average: 31.1k 30
30 29 29
30 28 29 28 28
27 27
25
242524 24
25 23
23
21 22
21
19
20 18 17 17
17
16
1414
15
10
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1Q21
3Q21
1Q22
Uncompleted units unsold Completed units unsold
Source: URA, internal estimates
UOL Group remains our preferred pick within the Singapore
property sector
The FSTREH Index has delivered total returns of 8.0% 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 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).
7Equity Research
25 July 2022
Exhibit 10: Forward P/B trend of FSTREH Index
(x)
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
Jul 2012 Jul 2013 Jul 2014 Jul 2015 Jul 2016 Jul 2017 Jul 2018 Jul 2019 Jul 2020 Jul 2021 Jul 2022
Forward P/B ratio 10-Year Average = 0.65x +1 SD = 0.79x
-1 SD = 0.52x +2 SD = 0.92x -2 SD = 0.38x
Source: Bloomberg, internal estimates, as at 22 Jul 2022 close
Exhibit 11: Valuation metrics of major Singapore-listed property players under coverage
Last Fair Dividend Dividend P/B P/B
Potential
Ticker Close Value Yield Yield FY-1 FY-2 Rating
Upside
(SGD) (SGD) FY-1 FY-2 (x) (x)
CapitaLand Investment CLI SP 3.82 4.13 3.1% 3.4% 1.2 1.3 8% HOLD
UOL Group UOL SP 7.31 8.56 2.1% 2.1% 0.6 0.6 17% BUY
Source: Refinitiv, internal estimates, as at 22 Jul 2022 closing prices
8Equity Research
25 July 2022
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