SINGAPORE’S private residential property market is now “fairly valued”, after price dynamics slowed in recent quarters, a recent UBS report said. 

Real prices have risen by 15 per cent since 2018, despite regulatory tightening, while rents have shot up by roughly 40 per cent in the same period, UBS said. But with cooling measures kicking in and tighter lending policies in place, home prices increased by only 3 per cent in inflation-adjusted terms between mid-2022 and mid-2023. Rents, too, are expected to soften. 

“Despite strong demand for living space, the housing market has left overvalued territory and we newly classify it as fairly valued,” UBS said.

The study, UBS Global Real Estate Index, was released on Wednesday (Sep 20). It tracks property prices and valuations across major cities, assesses where corrections are imminent, and where price increases are continuing or could happen in the future.

UBS noted that tenants in Singapore are paying 25 per cent higher rents compared to a year ago, the highest inflation-adjusted increase among all the cities analysed.

Rent has been accelerating since 2021 and has outpaced housing prices.

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The bank expects home price growth to moderate and rents to fall as housing supply ramps up and demand stabilises.

Rental demand should also moderate as the bulk of post-pandemic international relocations are over.

With higher stamp duties dampening demand from foreigners, and locals having to contend with tighter loan limits, both demand and affordability will be affected.

Investors will also need to keep a lookout for regulatory risks, UBS said, as the government has not ruled out rental market regulations in the future.

Affordability, measured by the price-to-income ratio, remains “stretched” in many cities despite house prices declining recently.

Unaffordable housing is often the result of strong foreign investment, tight zoning or strict rental market regulations driving up prices, the study said. On the contrary, weak investment demand will increase the risks of a price correction and weigh on the long-term price appreciation of properties.

A skilled service worker in Singapore needs an average 10 years of income to be able to buy a 650 sq ft flat near the city centre. Hong Kong workers fared the worst – it would take 22 times the average annual income.

In comparison, house prices were more sustainable in Miami, Madrid, and Toronto, where the price-to-income ratio is five times. 

Singapore is ranked sixth out of the 25 cities for affordability.

Price-to-rent multiples, which measure the number of years a flat of the same size needs to be rented out to pay for the flat, declined on average compared to last year, UBS said, as rental growth outpaced capital values.

On average, a Singapore apartment takes about 23 years of rent to pay for itself, compared to 15 years in Miami and 42 years in Tel Aviv, according to UBS’ data.

The Republic is ranked 14 out of the cities surveyed, based on the number of years that a flat needs to be rented out to pay for the property.

Across 25 major cities, UBS found that real housing prices in these cities had dropped 5 per cent in inflation-adjusted terms on average. 

Housing price growth has suffered due to rising financing costs as average mortgage rates have roughly tripled since 2021. “Annual nominal price growth in the 25 cities analysed came to a standstill after a 10 per cent rise a year ago,” the report added.

“On average, the cities lost most of the real price gains made during the pandemic and are now close to mid-2020 levels again,” said Claudio Saputelli, head of real estate at UBS global wealth management’s chief investment office.

Only two cities – Zurich and Tokyo – remain in the bubble risk category this year.  

Cities formerly in the bubble risk zone – Toronto, Frankfurt, Munich, Hong Kong, Vancouver, Amsterdam, and Tel Aviv – are now in the overvalued territory, said UBS. This category also includes other housing markets such as Miami, Geneva, Los Angeles, London, Stockholm, Paris and Sydney. 

Besides Singapore, other “fairly valued” property markets include New York, Boston, San Francisco, Madrid, Milan, Sao Paulo, Warsaw and Dubai.