New private housing market sees rising demand from young Singaporeans

By Wong Shanting,

ERA Singapore

/ EdgeProp Singapore |

February 15, 2024 8:00 AM SGT

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Even in the face of recent headwinds, including higher interest rates, moderating economic activity, and the implementation of market cooling measures in April 2023, demand for new private homes among Singaporeans has stayed steadfastly strong.

Singaporeans have consistently held sway in the local housing market, capturing the lion’s share of annual new home purchases. In 2015, Singaporeans accounted for 75.8% of new private home sales, with the percentage rising steadily over the years, reaching a peak of 84.5% in 2020 and remaining at that level since.

The upswing in Singapore buyers follows a steady growth in demand for new private residential homes, particularly among young Singaporeans, whom we define as those aged between 26 and 35 years old.

Between 2015 and 2022, the cohort of local adults comprising the above age group of new private home buyers has more than tripled.

The changing face of the Singaporean new private home buyers

Based on proprietary industry data from ERA Singapore, covering a sample size of 37,000 Singaporean new home buyers, we have identified three prominent demographic trends pertaining to new private home buyers in Singapore.

A rising proportion of young Singaporeans are buying new private homes

Mirroring housing markets worldwide, older Singaporeans have traditionally dominated the domestic market for new private homes, but there are now compelling signs supporting a noticeable shift in this widely-held narrative.

Across the past nine years, the share of young Singaporean buyers of new private homes has climbed steadily. In 2015, this demographic group accounted for just 9% of new private home sales in the country. This figure has surged by 26 percentage points to 35% in 2023.

The percentage of Singaporeans under 25 in the new private home sales market, though still small, also grew to 3% in 2023.

After the Covid-led demand surge in 2021, Singapore’s residential market entered a new realm, characterised by rising home prices amid supply chain disruptions and elevated interest rates. The additional buyer’s stamp duty implemented in April 2023 further dampened new home demand across the board in 2023. New private home sales reached some 13,027 units in 2021 but have fallen to a mere 6,421 units by 2023.

Among the different age groups, those between 26 and 35 saw the smallest decline in home-buying activity. Between 2021 and 2023, buyers in this age group shrank by 59.5%, from 1,818 to 737.

However, the older cohorts — 36 to 45, 46 to 55, and above 55 — fell more significantly by 69%, 72.9% and 71.8%, respectively, over the same period.

Singaporeans aged 36 to 45 still form the largest segment of new private home buyers despite the decline in numbers

Despite shrinking in number, Singaporean buyers in the 36- to 45-year-old cohort have retained their dominance in the new private homes market. In 2015, these Singaporeans accounted for 44% of new private residential property purchases, followed by Singaporeans between 46 and 55 years, whose share of new private home transactions was 33% in the same year.

Fast forward to 2023, and the size of both buyer groups has dipped. Singaporeans in the 36 to 45 age group now account for 37% of transactions, a 7 percentage-point drop compared to eight years ago.

The shift is even more apparent for those in the 46 to 55 age range, whose share of new private home transactions has fallen to 17% in 2023, marking a 16 percentage-point decline.

Read also: APAC Realty expands ERA franchise to Laos

Profile of new private home buyers skewed towards the young

In light of the latest changes in buyer demographics, the median age of Singaporean new private home buyers has been on a downward trend, indicating that younger generations of locals will play a more significant role in the new private residential market.

In 2015, the median age of new private home buyers was 45. It was 39 in 2023.

What is driving these shifts in new private homeownership?

1. Rising income is enabling young Singaporeans to achieve their private homeownership aspirations

According to official figures by the Ministry of Manpower, the median income for full-time employed residents increased for all age groups from 2016 to 2022.

In 2022, the median gross monthly income for full-time employed residents aged 25 to 29 reached $4,446, while those between 30 and 34 earned $5,792. Compared to the corresponding figures in 2016, this represents a 16.9% increase (up from $3,803) and a 15.8% increase (up from $5,000) for Singapore residents in the respective age groups.

Over the same period, full-time employed residents aged 35 to 54 also saw some of the biggest increases in monthly income, ranging from 19.8% to 53.8%.

The following gives a glimpse into the future earning potential of younger Singaporeans. New private homes are more accessible for young Singaporeans with growing incomes, as they allow for a progressive payment scheme and support those who may not have the income to manage the total mortgage payment at the beginning.

In tandem with this trend, the macroeconomic review published by the Monetary Authority of Singapore in October 2023 indicated that nominal incomes of middle-income workers — half of whom are between 25 and 49 years old in 2021 — grew more rapidly vis-à-vis other income groups.

Singapore’s healthy overall employment rate likely contributed to the growing number of young, local private home buyers.

2. Elevated interest rates have impacted mortgage eligibility, with older Singaporeans more impacted

Since 2H2022, interest rates in Singapore have soared in tandem with hikes in US Federal Reserve rates. In particular, the three-month compounded Singapore Overnight Rate Average has risen by 170 basis points since 3Q2022.

The resulting squeeze has impacted the mortgage eligibility of all Singaporeans, though the effects are more pronounced for older borrowers than for younger age groups.

Older Singaporeans face a double whammy: In addition to shrinking mortgage approvals — which translate into steeper upfront payments and a more significant initial capital outlay — they also have to contend with shorter loan tenures and higher interest rates that contribute to higher monthly mortgage repayments.

This confluence of factors has caused some older Singaporeans to put off their home upgrading plans indefinitely.

3. Buyers nearing the income ceiling for BTO flats may find more options in new private homes

Young Singaporean couples whose combined monthly household earnings surpassed the $14,000 income ceiling for Build-To-Order (BTO) flats could gravitate towards purchasing an executive condo (EC) or new private property over a resale HDB flat.

Case study with Couple A:

With a combined gross monthly income of $15,000, which exceeds the BTO income ceiling, Couple A is currently deciding between purchasing a resale HDB flat, an EC or a private condo.

Assuming a 75% loan-to-value limit, 30-year loan tenure, and 4% medium-term benchmark interest rate, Couple A can afford an EC or a resale HDB flat priced up to $1.25 million based on the prevailing Mortgage Servicing Ratio of 30%.

In comparison, with all loan assessment factors held constant and the current total debt servicing ratio of 55% applied, Couple A can afford a new private home valued at nearly $2.3 million.

Consequently, the larger loan quantum available for new private homes allows Couple A to explore a wide range of properties, thereby increasing their chances of finding a private residence which matches their needs and aspirations.

That said, the substantial downpayment and stamp duties associated with purchasing a new private home may pose a hurdle for younger Singapore adults.

Supposing Couple A chooses to purchase a $1.25 million resale HDB flat, they will need to provide a downpayment amounting to $312,500, of which $62,500 has to be paid in cash for a bank loan. After accounting for the buyer’s stamp duty (BSD) based on prevailing rates, Couple A’s initial cash outlay will amount to $97,100, but they can obtain reimbursement for the BSD from their CPF accounts.

In comparison, if Couple A were to opt for a new private home valued at $2.3 million, they will instead be required to fork out $575,000 for their downpayment. It translates into a minimum cash amount of $115,000, and with the BSD included, Couple A’s upfront cost for a new private home comes up to $199,600.

As a result, this initial upfront investment may put new launches out of reach of young Singaporeans aged 26 to 30, but not so much for their 31- to 35-year-old peers, who could have the adequate downpayment for upgrading upon selling their first home.

Anecdotal observations indicate a small proportion of young Singaporeans have received financial assistance from their parents for their first home purchase. However, in most cases, they could pay the equity portion of the purchase price themselves.

4. Cap on HDB resale price growth over the longer term could prompt more Singaporeans to consider private homes as an investment option

The reclassification of HDB flats announced in August 2023 has reaffirmed the Singapore government’s stance to ensure public housing affordability in the long run.

This includes introducing the Plus and Prime housing models — both of which come with tighter resale and rental restrictions, such as a 10-year Minimum Occupation Period and a subsidy clawback when sold on the resale market for the first time. Furthermore, prime flats will see resale buyers subject to the income ceiling cap.

All of these conditions could have a moderating effect on resale price growth in the future. Consequently, aspiring investors may shift their attention towards private homes, which could potentially yield better returns compared to HDB flats.

5. More young Singaporeans accumulate initial downpayment for home purchases through savings and investments

A survey published by global investment firm Franklin Templeton targeting respondents aged 18 to 35 revealed that 80% of young Singaporeans are currently investors. Half of the 502 respondents also agreed they should start investing at a younger age, which is critical to sound financial planning.

Doing so allows younger Singaporeans to accumulate the initial downpayment and purchase their first property. Private homes offer opportunities for capital appreciation and passive income.

Is this trend of young Singaporean private home buyers here to stay?

Although a growing number of Singaporeans are entering the private housing market at a younger age, it remains to be seen if this trend will continue.

A possible economic slowdown and moderation in income growth could dampen appetite and reduce purchasing power. It could lead others to re-evaluate their financial priorities.

Beyond macroeconomic factors, lifestyle and investment considerations are at play, too. For instance, private property with premium facilities may have greater investment potential.

Resale flat prices could moderate over the long term with more stringent resale restrictions for HDB flats in the future. Hence, some young buyers could be diverted to the private residential market.

With some 32 new private residential project launches in the pipeline this year, a greater number of younger home buyers could make their presence felt.