How Massive Inflation Around The World Will Affect Singapore Property Price
Massive Inflation Around The World Will Affect Singapore Property Price
The vacancy rate for island-wide completed private residential properties was up to 7.2% in Q4 2020 from 6.2% in the previous quarter and 5.5% in the prior year. The rental market in Singapore was adversely affected by the pandemic, with many companies postponing relocation plans due to the disease. As a result, leasing transactions will experience a significant decline in short time.
Rising energy costs
The price of electricity in Singapore is expected to rise further in the fourth quarter of 2019. The rise is partly due to the Russian military invasion of Ukraine, which has triggered a steep spike in oil prices. Singapore relies on imported natural gas to meet its energy needs, which are closely linked to oil prices. The increase in global gas prices will have an impact on Singapore, too, as these costs are largely passed on to consumers via fixed price plans.
The new rules and regulations are likely to have a pronounced impact on the price of Singapore properties. Many foreign investors have already pulled out of the market because of travel restrictions. Moreover, the government’s ‘Credit Card’ is unlikely to be approved to purchase a home, and the new rules may further deter foreign buyers. In addition, developers have a glut of unsold homes in Singapore, and are likely to have to slash prices to clear these homes.
If the carbon tax increases, the cost of energy will rise as well. The increase would affect non-owner-occupied residential properties, which are often used as investments. Owner-occupied residential properties, on the other hand, will be subject to higher property taxes. This would result in higher operating costs for properties with higher energy requirements. It could also mean higher future property service charges for tenants. While the rise in energy prices is bad news for investors, it is also good news for those who own property.
If the prices of fuels continue to rise, Singapore’s electricity prices will follow suit. The wholesale price of electricity in Singapore is significantly below its cost of production. Combined with rising demand from electric vehicles, data centres, and 5G networks, the price of electricity in Singapore will continue to rise. The Goods and Services Tax Voucher (GST) rebates will help to offset the effects of the rising fuel costs.
Low interest rates
With the recovery of global economies, Singapore’s economy has picked up. Its GDP increased by 22% and 14.9% in Q2 and Q3 2009, respectively. Although the economy is projected to contract by 3% in 2009, it is expected to grow by 4% in 2010 and then begin a new expansion cycle. In spite of the improved economy, Singapore has been affected by the global recession. According to the latest statistics, the price of residential units in Singapore decreased by 0.47% y-o-y during the first half of 2009 and Q3 2009. Compared to the rest of Asia, Singapore’s prices are still relatively high.
Inflation rates continue to remain low in Singapore, but they have increased in countries like Thailand and Indonesia. Although inflation rates have increased in these countries, they are far below the rates in Singapore. Inflation in Singapore is currently 3.8%YoY, which is higher than the trend of the previous years. Consequently, monetary policy will have to be tightened to reduce inflation and boost economic growth. The Singapore Interbank Offered Rate remains steady at 0.43%.
Inflation will impact the retail sector. Inflation in the retail sector is expected to push up prices in these sectors, including apparel and hospitality, as pent-up demand is seen around the world. Higher prices will boost occupiers’ balance sheets. Meanwhile, the growth of residential prices will continue to remain resilient. However, volume growth is expected to slow down, due to favorable regulatory policies. Meanwhile, grocery retailers should benefit from rising prices, as the market is driven by high domestic demand and wage growth. However, e-commerce will likely challenge the luxury and discretionary segments.
Among developed economies, the US and Europe are currently experiencing a period of unprecedented high inflation. The rise in prices has resulted in supply bottlenecks and higher prices for raw materials and energy. The Fed and the European Central Bank have responded differently to this situation, and more than a dozen of them have increased interest rates. Meanwhile, China, India, and Japan have not yet experienced national lockdowns due to a pandemic or a large switch from goods to services.
The government’s cooling measures are aimed at curbing excess demand in Singapore real estate. Foreign homebuyers may be willing to pay up to 30% more than the ABSD for a Singapore property. The rental market has remained hot over the past two years, but government cooling measures are also discouraging investors. Many foreign homebuyers are also deterred by the cooling measures. In fact, one real estate agent says that she has received only one enquiry since the cooling measures were announced in mid-December.
While this might not be the most obvious explanation, the underlying trend is clear. During one recent property launch, the demand for units was so high that there were six rounds of price increases. Units sold for S$1,400 per square foot were at the top of the market. The median price of units sold was S$1,042 per square foot. Chantel Neo, a property agent with Huttons, said that the demand for Pasir Ris 8 was particularly high because it was a prestigious and private condominium.
The government’s cooling measures will not do much to control the sky-high property prices in Singapore. However, they may have a modest impact on home prices in the first half of 2022, when Singapore’s home prices will likely increase 2% to 4%. The government’s measures are designed to limit the excess demand in Singapore, not to limit the supply. As a result, the government’s efforts to slow the market will probably fail.
Recent floods in Malaysia have increased the cost of imported goods. A rise in the GST is expected to drive up prices even further. However, it will be a relatively short-lived effect. Prime Minister Lee Hsien Loong has called for the Government to act now to stabilize the property market. The increase in GST will likely affect the value of homes in Singapore by only a few percent.
Rising inflation is expected to boost retail markets globally. This is because pent-up demand in certain consumer sectors – apparel and hospitality – is outstripping supply. Higher prices are expected to boost the balance sheets of occupiers. Real estate may also act as a hedge against inflation, as it is one of the less volatile asset classes. It is important to keep in mind that the housing sector is a key defensive asset class, linked to income granularity and essential nature.
The US Federal Reserve plans to tighten monetary policy to combat the rising costs of living. However, the increased costs of living will reduce the purchasing power of consumers and erode corporate margins. It is also likely to worsen the current economic instability. While tight monetary policy may help in the short term, the rise in inflation may result in higher prices in the future. A resulting spike in prices may aggravate the housing market, which is already in its second half.
While Singapore’s economy has been relatively stable over the past five years, the economy is expected to contract again by 2020. Although Singapore’s economic freedom is high, it is not consistent with high living standards. Its residents tend to believe that saving money will be easier when they are older and earn more. However, if you start investing earlier, you will have more time to weather market fluctuations and develop good financial habits, which are both crucial for meeting your goals.
Impending GST increase
The government of Singapore has a pressing need to raise revenue, and has decided to stagger the GST rate increase. As a result, the increase will not be implemented until 2022, and will be spread out over two years. This is a far cry from the staggered hike that was implemented 15 years ago. Moreover, it will inconvenience businesses, which will have to revise their ERP systems and price displays.
The GST implementation period has changed from January to December, but the aim of the tax has always been to strengthen the financial capability of Singapore. The increase in healthcare spending has been increasing in recent years, and the country has been facing operating deficits in five of the past seven years. Meanwhile, the recent COVID-19 health scare has underlined the need for continued healthcare investment and to replenish the depleted reserves.
Currently, Singapore has a broad-based GST system. Hence, there are no reduced rates for essential goods. This makes the tax administration much simpler. However, the hike in GST will have a negative impact on certain sectors in Singapore. Tourism and entertainment sectors are among the most affected. Fortunately, the government has provided support for these industries during Covid-19. Businesses should diversify their imports and build buffer stocks of goods essential to their operations.
A two-percent increase in the goods and services tax rate will impact the price of property in Singapore. As a result, many Singaporeans will have to cut back on “good-to-haves” to cope with the increased cost of living. This will impact businesses and delivery riders. As a result, many lower and middle-income households will get payouts ranging from S$700 to S$1,600.
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