27/11/2014

Singapore Property Market Cycle

Any typical real estate market experiences periodic cycles that correspond to changing circumstances in its economy and influence from external events and trends.

General Overview on Property Cycle

Any real estate market cycle consists of four distinct states; rising, booming, declining and stabilization.

The rising state occurs after the stabilization state of the previous cycle has passed. This state symbolizes a good environment within the real estate market with slowly rising prices, rising return on property investment and rental yield, increasing demand, faster uptake and easy real estate financing.

The booming state signifies the near saturation of supply in the real estate market coupled with rapidly increasing demand. In this state, more supply is in plans to meet rising demand; sale and rent prices increases rapidly due to declining availability, properties are sold very quickly and are easily financed. This is the best phase of the cycle and authorities around the world attempt to prolong this period as much as possible, such is prior to 2008 in the Singapore property market.

What follows the booming state is the declining state; the declining state is usually brought about by uncontrolled booming where the market compensates high demand with excessively high supply that surpasses demand growth and causes a wide gap between both forces. In this state, property availability continues to increase without adequate demand and the whole market slows down. This causes prices and yields to slowly drop, and property stays on the market longer due to lack of interest, which forces developers to decrease prices even further. The Singapore real estate market is currently in the declining phase, which raises a lot of concern about the severity of the decline in the upcoming years and its effects on Singapore’s prized economy.

At the end of the declining state, the real estate market reached the bottom; the market stabilizes when prices reach their lowest point and stop declining. In this state, property supply is high and demand is almost stagnant. It is most difficult for developers to obtain financing for projects at this point as it is unclear when sales prospects will improve. With time, population and economic growth will spur new demand and the real estate market will slow enter a new rising state.

The duration and severity of each of the 4 cyclic states depends on many factors. Measures must be taken to protect real estate markets from potentially dangerous states such as uncontrolled booming or extreme decline.

singapore property market

What’s In For Singapore Property Market?

Real estate cooling measures, such as those enforced on the Singapore property market by the government, are meant to dampen market decline and allow for a more rapid recovery

The Singapore real estate market started its current cycle in 2009, with the rising and booming states occupying 5 years until the introduction of the cooling measures. Property prices started experiencing noticeable decline from the beginning of 2014 and continue to decline steadily as a direct result of these measures.

Over both the rising and booming states, property prices in the Singapore property market have risen more than 60%, and would have continued to rise rapidly if not for the cooling measures. As the declining phase begins, prices have dropped just a few percent, which means that the declining state is only in its beginning!

Major global trends such as the European debt crisis in 2010 and several natural disasters in 2011 helped curb rapidly increasing property prices in those years, but the market remained strong and continued its boom despite the effects.

A heated debate rages in Singaporean societies concerning the cooling measures enforced by the government on the real estate market because of their unintended negative effects such as increase of foreign buyers, risk of undersupply in the future and a very low number of real estate transactions

The government expressed its intent to preserve these cooling measures to prevent the market from plummeting and acknowledges that too much corrective action could bring about an artificial crisis to the market.


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