Home prices hit an all-time high even as sales declined for a second straight quarter. Prices rose across all market segments, especially in the city fringe area. Private home prices grew faster despite the cooling measures and spiralling inflation.
Consequently, private home sales dipped about 8 per cent quarter-on-quarter (q-o-q) in Q1 2023. The slower sales indicate that declining affordability has taken a toll on some potential buyers who face the dual challenges of skyrocketing interest rates and continued price growth.
Reasons for faster price growth
Private home prices rose at a faster pace of 3.2 per cent in the first quarter of 2023 than the previous quarter, according to the Q1 flash data released by the Urban Redevelopment Authority (URA). This is in stark contrast to the slight increment of 0.4 per cent in the last quarter of 2022. Year-on-year, prices rose by 11.3 per cent last quarter.
Prices of non-landed private residential properties in the Rest of Central Region (RCR) or city fringe rose the fastest by 4 per cent in Q1 2023, compared to a 3.1 per cent increase in Q4 2022. Non-landed homes in the suburbs or the Outside Central Region (OCR) similarly increased by 1.9 per cent, reversing the 2.6 per cent decline registered in Q4 2022. Those in the prime districts, or Core Central Region (CCR), rose by 1 per cent after a 0.7 per cent growth in the preceding quarter. Landed property prices surged by 5.7 per cent, the fastest quarterly growth since Q1 2021, when prices increased 6.7 per cent quarter-on-quarter (q-o-q).
Last quarter’s price increases were driven by a higher proportion of new home sales, and new homes are usually sold at higher prices than resales. According to URA Realis data, new homes, excluding EC, made up 33.4 per cent of total sales last quarter, up from 18.9 per cent in the preceding quarter. Resales dipped to 62.4 per cent from 76.1 per cent over the same period.
Moreover, pricier homes of at least S$2 million constituted a higher proportion of total sales (excluding EC) last quarter at 40.7 per cent, up from 37.9 per cent in Q4 2022.
Private homes of at least S$5 million rose from 6.6 per cent in Q4 2022 to 7.8 per cent in Q1 2023. In terms of absolute numbers, 282 private homes were sold for at least S$5 million last quarter, about 19.5 per cent more than the 236 transactions in Q4 2022.
Based on URA realis records, 26 landed properties and condominiums were sold for at least S$15 million last quarter. A 6,286 sqft new freehold condominium at Les Maisons Nassim was sold for S$36 million or S$5,727 psf in February this year. A sprawling 25,683 sqft bungalow at 61 Wilkinson Road was sold for S$55.5 million or S$2,161 sqft in January.
Outlook
As anticipated, the price index snapped back last quarter as more projects were launched. More private homes will be launched in prime locations and city fringe areas in the coming months. Sales of such pricier homes may further uplift the overall price index.
There are some silver linings on the horizon as rate hikes have slowed in recent months. Interest rates may peak in the first half of this year as the Federal Reserve (Fed) is considering a pause on hikes if the banking crisis worsens.
The fallout of a few big banks has prompted the Fed to slow the pace of rate hikes recently, by a quarter point in March. They believe that the banking industry stress could trigger a credit crunch in the US and have a significant ripple effect on the macroeconomy. If interest rates stabilize and ease from the second half of this year, more buyers may return to the market.
We estimate prices may grow by 5 to 8 per cent for the whole of this year.