Riding on the property bull run

Private property prices are influenced by a variety of complex variables and vary according to economic world trends, much like how the stock market operates.

In recent times, the domestic private property market can be described as unpredictable. Within a short space of time there has been a great deal of change in prices across the board, resulting from events such as the introduction of a succession of new government policies and the global financial crisis.

While it is difficult to lay claim as to why or which specific, or even a range of, casual factors cause private property prices to rise or fall or rise, noticeable trends can be tracked to gauge general growth over time.

One interesting aspect of the Singaporean private property market which emerges from the study of these trends is that location plays an integral role as different regions behave differently at different stages of the property market cycle.  

To analyse this further and for the purpose of a simple illustration, all private properties in the different districts have been clustered collectively according to geography and assigned regional nomenclatures (see map):

•    Central: 01 02 03 04 06 07 08 09
•    Outer: 05 10 11 12 13 14 15 20 21
•    North: 25 26 27 28
•    East: 16 17 18 19
•    West: 22 23 24

 

 

 

 

 

 

 

 

 

Plotting against the market cycle for a yearly comparison, we see that there is a consistent rise in property prices with significant differentiation between the regions. At first glance, it is not surprising the Central region garnered the highest increase from 2005 to date, followed by the adjacent Outer region, then the East and West and finally the North.

One may be tempted to argue that this just illustrates a simple pecking order in terms of locality. After all, it is common knowledge that the closer to the centre, the more expensive private property tends to be, and with higher prospects for capital appreciation. However, it is also vital for property seekers to comprehend and translate these trends before engaging in private property buying and/or selling.

The Early Growth and Boom Phase
This period, ranging from 2005 to the beginning of 2008, is the initial start point for the bullish property market.  During this phase:

•    The Central region exhibits the strongest capital appreciation with almost 50 percent growth over the Early Growth period, and a further 60 percent during the Boom period. In total, the region displayed growth of more than 100 percent in capital value over three years.
•    The Outer region recorded a 25 percent growth in the Early Growth period, followed by some 55 percent during the Boom phase. While this may seem impressive, this only accounts for just half of the total price increase attained by the Central region.
•    Interestingly, the regions further out experienced negligible capital growth over the early growth phase and only begin to appreciate in value during the Boom period at the end of 2007. Prices in the Northern region grew the least at 35 percent in the 18 month period of the Boom phase, while the East and West regions grew approximately 50 percent over the same time.

Market Correction: The Financial Crisis

•    The North emerges relatively unscathed by the downturn, dropping just some 7 percent (from the peak to the trough). Similarly, the East and West moved broadly in step with each other to experience a fall of some 8 percent over the 14 month duration.
•    At the opposite end of the spectrum, the Central region fell some 19 percent over the same period
•    Likewise, the Outer Central region was hit marginally harder, decreasing by some 20 percent.
•    This change in price points for the Central and Outer regions may not sound like much difference, but it highlights the fact that while these areas gain the maximum growth during property growth periods, they also incur the highest risk, and subsequent devaluation, when the economy becomes more bearish.

The Recovery and Growth Phase

•    We see that in the growth resumption phase, private property prices continue to pick up after the dip during the financial crisis. The best performers were the East and the West (both 44 percent) as well as the Outer (41 percent) region, while price growth in the North and the Central regions were approximately the same on 35 percent.
•    A point to note here is that although the North grew by the same amount as the Central region after the crisis, it did so with far less risk during the period of the crisis. This hints to relative stability of purchasing in the North.

Mature Market Phase
Coming closer to the present, the Singapore private property market can be characterised as entering a Mature Market phase, with a comparatively slower pace of price increase as opposed to earlier in the market cycle.

•     It can be seen that the North is the safest area to purchase a private property because it experienced the most consistent area for growth. The only drawback is that it is also a region which encounters the least increase in capital appreciation historically since 2005
•    On the other hand, the Central region has gained the most in absolute growth over the four periods – but it has done so at the highest level of risk of all the regions
•    The Outer Central has delivered the second highest level of absolute capital gain – but again, at a risk level similar to that of the Central region
•    The East and West regions have continued to move constantly with each other throughout all four stages of the property cycle, indicating a good mix of profitability and risk for the discerning property seeker.

Written by Adam Rahman, Senior Marketing Executive at PropertyGuru

If you would like to know more about how different regions of the Singapore property market behave, please email [e-mail]