Back to listingWealth Insights Podcast 5
January 2023
Singapore Residential Property: Physical assets or stocks?
Property stocks have staged a spectacular turnaround…
After a dismal 19.3% decline in 2020, the property index has powered ahead this year to reverse its fortunes with a staggering gain of 12.7% so far. This incredible outperformance was despite a still cautious market environment, plagued by concerns over unemployment and inflation.
What caused this spectacular turnaround?
Pandemic and its woes
When the pandemic hit in 1Q2020, the world was plunged into great uncertainty. As economies locked down, concerns that economic activities would grind to a halt escalated.
Cyclical and value stocks became under-appreciated, largely on the basis that these businesses were likely to be more vulnerable to an economic downturn.
In a concerted effort to support economies, central banks flooded markets with unprecedented amounts of liquidity.
This fuelled interest in several assets, including gold, equities, properties and certain commodities. High growth sectors benefitted; essentially these were companies that were able to digitalise their businesses or offer an online alternative. As a result, they were able to still enjoy good revenue and profit growth.
Throughout 2020, the equity market saw concentrated focus on high growth companies which were likely to beat the downtrend.
But that is last year’s story…
Vaccines roll-out sparking recovery
This year, the global roll-out of vaccines – and as more people are vaccinated, especially in developed countries – augurs well for an economic recovery. Global economic growth looks set to enjoy a sharp turnaround relative to the sharp decline in 2020, and this optimism has fuelled interest in last year’s under-appreciated sectors and companies.
As a result, there has been a strong rotation from growth to value stocks.
The renewed buying interest cyclical and value stocks this year has seen them outperforming growth companies.
Low interest rates; 4%-6% rise in property prices
As interest rates are expected to stay low, this has led to an interest in other potentially better yielding assets, including residential properties and property stocks. Mortgage rates are likely to stay low.
In Singapore, unemployment rates are also improving as the economy recovers.
The URA’s 1Q2021 flash estimates were released recently and private home prices rose 2.9% quarter on quarter (QoQ). This is better than the street’s expectation and is the fourth consecutive quarter of growth over the preceding quarter.
Similarly, the HDB Resale Price Index also showed good growth of 2.8% QoQ. This has mirrored the robust performance of the private residential property market.
Based on the positive trend in 1Q2021, it looks like the rest of the year is going to be a healthy one for Singapore properties. We are projecting a 4%-6% rise in residential property prices for 2021, supported by economic recovery in the region, improving unemployment rates and the still low mortgage rate environment.
There is also the possibility of foreign buyers returning to the Singapore market.
What about property cooling measures?
However, as property prices move higher, market concerns of property cooling measures will inevitably surface.
As such, the recovery is unlikely to be a straight line and could potentially be bumpy.
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