Post-Covid-19 recovery in private residential market expected to be similar to post-H1N1 rally

The private residential market is expected to pick up after the government’s “circuit breaker” measures end on June 1, and the rally could be similar to the post-H1N1 situation. Main factors such as high liquidity and low interest rates are expected to support housing demand, while the government’s efforts to limit unemployment are helping to sustain property prices in general.

Covid-19 is not the first public health crisis that Singapore’s private residential market has weathered. The market picked itself up after both the SARS outbreak in 2003 and the H1N1 pandemic in 2009, although neither event resulted in the lockdowns and strict safe distancing measures that Covid-19 has forced most countries to implement.

Singapore’s global exposure makes the property market vulnerable to the economic impact of pandemics, which is compounded when they strike before or during major global shocks.

For example, SARS was compounded by the dotcom bubble bursting in the late 1990s, the 9/11 terrorist attacks and the ensuing Afghanistan conflict, while H1N1 added to the woes of the Global Financial Crisis (GFC) brought about by the subprime mortgage crisis. Covid-19 has hit amid global uncertainties such as Brexit and a Sino-US trade war that threatens to escalate.

As from the chart , the SARS and H1N1 pandemics by themselves did not bring down Singapore’s private home prices at the time. It was the economic and financial turbulence that preceded SARS, and that coincided with the H1N1 outbreak which caused the private home market to retract. Just like SARS and H1N1, Covid-19 has sent the private home market into a ‘pause’ mode, especially with the movement controls.” The private property industry is currently grappling with a slowdown in buying activity and construction disruptions in April and May.


I expects the macro-environment in Singapore in the second half of the year to have similarities to the post-H1N1 recovery phase from 2011. “H1N1 erupted as the financial crisis deepened and Singapore’s unemployment peaked in 4Q2009. During the recovery, demand for private properties [in Singapore] was fuelled by low interest rates, rising liquidity, an HDB resale price index that climbed a total of 102% over 33 consecutive quarters, and a renewed interest in real estate as a safer asset class,”

As a result, the Residential Price Index (RPI) rose as demand from HDB upgraders helped to fuel the increase in private residential transactions in the post-H1N1 recovery phase. According to URA Realis, the RPI increased from 142.3 in 1Q2011 to 152.4 in 1Q2013, which translates to a 7% increase over the period.

Residential Price index (RPI) and Unemployment Rates. (Chart: URA Realis & Singstat)

If you noticed interest rates have also not recovered from record low levels since the GFC, with Sibor expected to remain close to its current relatively low levels for some time.

The unemployment rate has historically played a significant part in supporting local property prices. According to the Ministry of Manpower, unemployment in Singapore during the SARS period bottomed out at 4.8% in September 2003 — in comparison, the jobless rate was 2.4% in March this year.

In general, a high unemployment rate is likely to force more owners to sell their properties at lower prices, dragging down the RPI and making a price recovery more drawn-out. This was the case during the post-SARS recovery.

“Saving jobs" will be something the government will put a lot of emphasis on. Historically, we have observed an inverse correlation between the RPI and unemployment rates. With unemployment rates expected to rise over the next few quarters, we can expect buying sentiment to be affected, with investors staying on the sidelines and the RPI easing.

Government policies

The government has used policies to directly influence the private and public housing market to ensure long-term, sustainable growth that is in line with economic fundamentals. While the market recovered on its own after the H1N1 crisis, more effort was needed to stimulate the property market after the SARS outbreak.

With the Singapore economy in the doldrums from 2000–2004 — because we were turning the corner from the dotcom crisis, SARS, and 9/11 — the private residential market was also languishing at the point of time.

Liquidity and Sibor (Chart: Ministry of Finance and Association of Banks in Singapore)

In June 2001, the URA introduced the Reserve List to the Government Land Sales (GLS) Programme to regulate the residential supply. It also removed the capital gains tax in October that year, and approved an application for the Deferred Payment Scheme to be introduced in 2Q2002. Foreigners were also allowed to purchase all types of non-landed residential properties, and the Loan-To-Value (LTV) ratio was raised to 90% for the sale price.

All these measures, together with the approval of the two integrated resorts in April 2005, gave the private residential market a much-needed shot in the arm. Post-SARS, foreigners and Singapore permanent residents (PRs) investing in the Singapore residential market led buying demand which rose spectacularly by 437% from 3Q2004 to 3Q2007.

On May 6 this year, the government announced a slew of temporary relief measures to support the real estate industry ( which i have covered in my previous blog article ) amid the Covid-19 pandemic. The measures include a six-month extension to project completion periods (PCP) of residential, commercial and industrial developments; a six-month extension for developers on the commencement and completion period of residential developments, as well as sale of housing units in residential projects in connection with the remission of the additional buyer’s stamp duty (ABSD).

With this announcement, we can seen that the government has shown it is ready to step in with measures, albeit temporary, to ease any potential turbulence and to help investors and developers who may be facing hardships. Perhaps more could be done to help, but the unprecedented liquidity in the market and low-interest rate environment that we are in right now will be points of consideration for the government with regard to whether cooling measures will be eased.

After SARS, most buyers did not have the ability or willingness to enter the property market, while affordable lending post-H1N1 enabled buyers to enter the market relatively quickly. The attractiveness of real estate as a safer asset also caused many investors to shift away from financial instruments, and relatively high HDB prices caused many HDB upgraders to choose private properties over public flats.

Looking ahead, the willingness of the buyers to enter the market will depend on their outlook for the economy and how badly businesses are going to be affected; both factors are still uncertain at this point in time. However, it is likely to be a buyers’ market for the foreseeable future perhaps at this moment of time.

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